[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                LEGISLATION RELATED TO TRADE WITH CHINA

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             AUGUST 2, 2007

                               __________

                           Serial No. 110-52

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCKCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCKDERMOTT, Washington           DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCKNULTY, New York        PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida


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ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON TRADE

                  SANDER M. LEVIN, Michigan, Chairman

JOHN S. TANNER, Tennessee            WALLY HERGER, California
JOHN B. LARSON, Connecticut          JERRY WELLER, Illinois
EARL BLUMENAUER, Oregon              RON LEWIS, Kentucky
BILL PASCRELL, JR., New Jersey       KEVIN BRADY, Texas
SHELLEY BERKLEY, Nevada              THOMAS M. REYNOLDS, New York
JOSEPH CROWLEY, New York             KENNY HULSHOF, Missouri
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

                               WITNESSES

The Honorable Debbie Stabenow, U.S. Senator from the State of 
  Michigan.......................................................     9
The Honorable Artur Davis, Representative in Congress from the 
  State of Alabama...............................................    12
The Honorable Ralph Regula, Representative in Congress from the 
  State of Ohio..................................................    21
The Honorable David Dreier, Representative in Congress from the 
  State of California............................................    15
The Honorable Duncan Hunter, Representative in Congress from the 
  State of California............................................     7
The Honorable Pete Visclosky, Representative in Congress from the 
  State of Indiana...............................................    19
The Honorable Joseph Knollenberg, Representative in Congress from 
  the State of Michigan..........................................    23
The Honorable Bart Stupak, Representative in Congress from the 
  State of Michigan..............................................    29
The Honorable Tim Ryan, Representative in Congress from the State 
  of Ohio........................................................    35
The Honorable Michael Arcuri, Representative in Congress from the 
  State of New York..............................................    26
The Honorable Bruce Braley, Representative in Congress from the 
  State of Iowa..................................................    33

                                 ______

The Honorable David M. Spooner, Assistant Secretary for Import 
  Administration, International Trade Administration, Department 
  of Commerce....................................................    43
The Honorable Mark Sobel, Deputy Assistant Secretary for 
  International Monetary and Financial Policy, U.S. Department of 
  Treasury.......................................................    48
The Honorable Daniel Brinza, Assistant U.S. Trade Representative 
  for Monitoring and Enforcement, Office of the U.S. Trade 
  Representative.................................................    56
The Honorable Daniel Baldwin, Assistant Commissioner, Office of 
  International Trade, U.S. Customs and Border Protection, 
  Department of Homeland Security................................    61

                                 ______

John A. Williams, Executive Director, Southern Shrimp Alliance, 
  Tarpon Springs, Florida........................................    75
Skip West, President, MAXSA, Innovations, on behalf of Consumer 
  Electronics Association, Fairfax Station, Virginia.............    81
Skip Hartquist, Partner, Kelley Drye & Warren LLP, on behalf of 
  the China Currency Coalition...................................    84
Lewis E. Leibowitz, Partner, Hogan & Hartson LLP, on behalf of 
  Consuming Industries Trade Action Coalition....................    91
Robert E. Lighthizer, Partner, Skadden Arps Slate Meagher & Flom 
  LLP............................................................   103

                       SUBMISSIONS FOR THE RECORD

Congressman Alan B. Mollohan, statement..........................   123
American Apparel & Footwear Association, statement...............   123
American Iron and Steel Institute, statement.....................   127
American Manufacturing Trade Action Coalition, statement.........   130
Congressman J. Gresham Barrett, statement........................   133
Congresswoman Jan Schakowsky, statement..........................   134
Consumers for World Trade, statement.............................   135
Emergency Committee for American Trade, statement................   136
Law Offices of Stewart and Stewart, letter.......................   143
National Pork Producers Council, statement.......................   147
North American Association of Food Equipment Manufacturers.......   152
Precision Metalforming Association, statement....................   152
Retail Industry Leaders Association, statement...................   154
Robert S. Nichols, statement.....................................   159
Schottenstein Stores Corporation, statement......................   165
Securities Industry and Financial Markets Association, statement.   166
The Ranchers-Cattlemen Action Legal Fund--United Stockgrowers of 
  America, letter................................................   171
U.S.-China Business Council, statement...........................   177
Virgil H. Goode, statement.......................................   180


                     HEARING ON LEGISLATION RELATED
                          TO TRADE WITH CHINA

                              ----------                              


                        THURSDAY, AUGUST 2, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 9:04 a.m., in 
room 1100, Longworth House Office Building, Hon. Sander M. 
Levin (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
July 26, 2007
TR-5

                      Levin Announces a Hearing on

                Legislation Related to Trade with China

    Congressman Sander M. Levin (D-MI), Chairman of the Subcommittee on 
Trade, today announced that the Subcommittee will hold a hearing on 
legislative proposals relating to trade with China. The hearing will 
take place on Thursday, August 2, in the main Committee hearing room, 
1100 Longworth House Office Building, beginning at 9:00 a.m.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

FOCUS OF THE HEARING:

      
    The hearing will focus on legislation relating to trade with China. 
The legislation to be examined includes bills to address trade-
distorting currency practices, as well as legislation to modify U.S. 
trade remedy laws. In addition, the hearing will address the safety of 
food imports into the United States and issues related to the 
application of sanitary and phytosanitary measures overseas and the 
consistency of those measures with World Trade Organization (WTO) 
rules.
      

BACKGROUND:

      
    Trade flows between the United States and China are substantial, 
growing, and heavily imbalanced. U.S. exports to China in 2006 were 
$55.2 billion, up from $41.9 billion in 2005, and $19.2 billion in 
2001, the year China acceded to the WTO. U.S. imports from China in 
2006 were $287.8 billion, up from $243.5 billion in 2005, and $102.3 
billion in 2001. The result is a large and growing U.S. goods trade 
deficit with China: $232.6 billion in 2006--the largest trade deficit 
in U.S. history. (The United States had a services trade surplus with 
China of $2.6 billion in 2005, up from $1.8 billion in 2004 and $2.0 
billion in 2001.) In the first five months of 2007, the U.S. trade 
deficit with China was higher than in the first five months of 2006. In 
2006, China accounted for roughly 12 percent of total U.S. trade and 30 
percent of the total U.S. goods trade deficit with the world.
      
    Currency Practices. Economists generally consider that the Chinese 
renminbi (also called the ``yuan'') is undervalued relative to the U.S. 
dollar, with estimates ranging from 9.5% to 54%. China holds more than 
$1.3 trillion in foreign exchange reserves--reserves that help to keep 
the value of its currency relatively low and China's exports to the 
United States relatively less expensive, in U.S. dollar terms, than 
they otherwise would be. The currency issue was the subject of a 
tripartite hearing (between the Trade Subcommittee, and the relevant 
subcommittees of the Financial Services Committee and the Energy and 
Commerce Committee) on May 9.
      
    A number of bills have been introduced to address the problem of 
persistent and substantial currency misalignment. The bills take 
varying approaches. For example, some would provide for the imposition 
of antidumping and countervailing duties to address the fundamental 
misalignment of a currency in certain circumstances, and require the 
Treasury Department to consult with countries that are found to have 
fundamentally misaligned currencies. Others would apply across-the-
board duties on all imports from China, so long as China is 
manipulating its currency.
      
    Modifications to Trade Remedy Laws. Existing U.S. trade remedy laws 
include the antidumping law, the countervailing duty law (to address 
subsidized imports), and the law to provide relief from ``market 
disruption'' caused by imports from China (section 421 of the Trade Act 
of 1974, as amended). Increasingly, China is a major source of dumped 
and injurious imports, with nearly 85% of imports subject to new 
antidumping orders since 2004 originating from China, and it has many 
subsidy programs that could distort trade between the United States and 
China.
      
    A wide variety of bills has been introduced in the 110th Congress 
to modify each of these three laws. One bill would: (1) defer U.S. 
compliance with decisions by the WTO Appellate Body (regarding a ruling 
that the United States is required to offset dumped sales with non-
dumped sales) until the Administration clarifies U.S. rights and 
obligations within WTO multilateral negotiations and (2) overrule a 
U.S. Federal Circuit opinion requiring the U.S. International Trade 
Commission to undertake an additional analytic step before making an 
affirmative injury determination in certain cases. Another bill would 
amend U.S. trade remedy laws so that U.S. manufacturers that use 
products subject to countervailing or antidumping duty proceedings or 
use domestic like products (industrial users) can participate in such 
proceedings. There is also legislation that would clarify that U.S. 
countervailing duty law applies to nonmarket economy countries. 
Finally, there is a bill pending that would remove the President's 
discretion not to impose Chinese safeguard relief to the extent that 
imposing such relief would have an adverse impact on the U.S. economy 
clearly greater than the benefits of such action.
      
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
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August 16, 2007. Finally, please note that due to the change in House 
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      Note: All Committee advisories and news releases are available on 
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with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
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materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman LEVIN. We are going to break the rules and start 
on time. Our colleagues will be joining us. Mr. Herger and I 
have discussed the procedure for today. As we know, we hope 
this is going to be the second to last day before the recess, 
we hope. It is uncertain about voting patterns, and also we 
have the problem that we are going to have to exit this hearing 
room at 1:00 or so because of the memorial for our late 
colleague, our beloved colleague, Guy Vanderjagt, who used to 
sit two or three chairs down when I was a junior Member here. 
So, Mr. Herger and I have agreed what we will do is to have 
first the first panel of Members and that we won't ask 
questions and we will ask you questions on the floor. We may 
have to go over to the Senate to do that.
    Then the second panel, which consists of representatives of 
the Administration, we agreed that we will ask questions and 
try very much to limit that panel to an hour and a half and we 
will go by seniority. But if anyone did not have a chance among 
our colleagues to ask questions of the second panel, they will 
be first to ask questions of the third panel, which are people 
from the private sector.
    So, here we go and we are glad all of you can be here. I 
think what we will do first is have an opening statement from 
myself and then from Mr. Herger, and any other Member who 
wishes to present an opening statement will have it printed in 
the record. I will start by indicating that my full statement 
will be printed in the record, and I will simply give part of 
it.
    China has quickly become a major force in the global 
economy. When China entered the WTO some years ago, we expected 
that it would change the dynamics within the WTO system of 
trade and that that system would change China. The changes have 
been even more profound than we expected, in part because of 
China's size, its natural and human resources and its major 
combination of individual enterprise and state involvement in 
its economy.
    This hearing, and I want to emphasize this, represents an 
effort in an open, candid House consideration of our huge 
economic and trade relationship with China, its major benefits 
and its major problems. The nature and extent of these problems 
mandate that we go beyond the automatic polarization that often 
grips discussions of trade issues.
    One of the issues being discussed today is the impact of a 
major imbalance in the currencies of the U.S. and China.
    Yesterday after two Senate Committees acted on this issue, 
Secretaries Paulson and Gutierrez and Ambassador Schwab wrote a 
letter to Majority Leader Reid and the others in the Senate 
opposing their currency bills. After extolling the benefits of 
open trade, the letter urged that when another nation has 
policies less open, now I quote, ``There is a temptation to 
respond by raising barriers to trade. That is the wrong 
approach. Protection is an economic isolationism that 
undermines our ability to promote reform abroad and weaken our 
economy at home.''
    In my judgment evoking such rhetoric is totally misguided. 
It undermines the chance of bridging differences among people 
who have worked actively to expand trade, including the 
leadership of this Committee. There are legitimate differences 
as to whether and how to address our economic relationship with 
China, but invoking ``protectionism'' or ``economic 
isolationism'' and the ghosts of Smoot-Hawley only jeopardizes 
intelligent discussion and effective decisions.
    So, I hope today's hearing is a further step in serious 
Congressional consideration of our relationship with China. 
When PNTR to China and its succession to the WTO was approved 7 
years ago, and I remember so vividly the consideration in this 
Committee, there were expectations that the U.S. would take an 
active role in ensuring the full implementation and enforcement 
of China's WTO commitments, that the U.S. would exercise its 
rights and enforce and defend its trade remedy laws and 
ultimately that China would honor the commitments it made. 
Unfortunately, these expectations have not been realized under 
this administration.
    This increases the relevance of a common thread in the 
issues in this hearing, the extent to which Congress should 
delegate to the Executive the power to decide for itself and by 
itself, whether and how to take actions, to address serious and 
legitimate concerns over the government of China's trade 
distorting practices. For example, on currency, should Congress 
grant the President the authority to waive action necessary to 
address foreign government intervention in the currency 
markets? Under U.S. anti-dumping laws should Congress continue 
to let the Administration decide for itself if and when a 
country such as China should graduate from the status of a 
nonmarket economy to a market economy or does the bill 
introduced by Representatives Davis and English provide a 
better approach?
    Third, under the special China safeguard mechanism, section 
421, which by the way was inserted into the WTO accession 
agreement to the implementation language in this Committee, 
should Congress continue to allow the President to deny relief 
envisaged under WTO rules to a U.S. industry that is materially 
injured by a surge in China's imports or has Senator 
Rockefeller offered a better approach?
    Fourthly, should Congress allow the Administration to 
acquiesce in the way dumping margins have been calculated for 
more than 80 years as the U.S. faces recent WTO appellate body 
decisions that the Administration itself describes, in quotes, 
``as devoid of legal merit'' or should it consider the bill 
sponsored by Representatives Barrett, Neal, Regula and Spratt?
    I conclude with these thoughts. The rest of my statement 
will be in the record.
    Recently the Administration has indicated that many trade 
bills to address China's trade distorting practices, including 
the pending currency legislation, are WTO inconsistent. I am 
often skeptical of those claims because they are often used 
without much thought or analysis whenever someone simply 
doesn't like a particular proposal. I would welcome, and I 
think my colleagues would, the opportunity to work with the 
Administration to ensure the passage of strong and WTO 
consistent legislation to address our heavily imbalanced 
relationship with China. The Administration has shown no 
interest in such legislation. Indeed, as I have already 
explained, the Administration has sometimes been part of the 
problem.
    There are several reasons for the insecurity felt by 
hardworking people in businesses in our Nation. One reason for 
this, it is only one, but it is one, is that for years too 
often there has been a hands-off approach to trade policy, 
while some of our trading partners have taken a gloves-off 
approach, intervening in markets to give their producers an 
unfair advantage over ours. This must change. It requires 
addressing the government of China's trade distorting policies 
which have contributed to the growing imbalance in our trade 
relationship with China.
    It is now my pleasure to yield time to my colleague, the 
Ranking Member, Mr. Herger.
    Mr. HERGER. Thank you, Chairman Levin.
    In February, March, and again in May, this Subcommittee 
held hearings on China. At all of them I stressed the need to 
achieve a balance, that we look at our economy as a whole and 
accommodate the interest of import sensitive industries as well 
as those of U.S. industries that need imports to stay 
competitive.
    I thought my message had been consistent, it won't change 
today. To me the issue is basic fairness. Let us treat all U.S. 
manufacturers equally. I am therefore here to discuss H.R. 
1127, a bipartisan bill that will allow U.S. manufacturers, 
like the auto industry that rely on imports, subject to AD or 
CVD orders, to participate meaningfully in trade proceedings 
before the Department of Commerce and International Trade 
Commission instead of being locked out of the process.
    Much is at stake for these industrial users, particularly 
when it comes to China. There are 62 existing anti-dumping duty 
orders on Chinese goods, 62. Fifty percent of the pending anti-
dumping and countervailing duty investigations are on Chinese 
products. Based on these statistics, it appears that our China 
trade enforcers have been pretty busy, especially when you also 
consider that USTR has filed six different WTO cases against 
China since 2004, an unprecedented flurry of activity for the 
United States since the WTO agreements were up and running in 
1995. There are several bills pending in the Congress that seek 
to rachet it up, not only attention toward, but duties on China 
imports.
    There is one problem, however. All of these bills would 
have the United States run afoul of its international legal 
obligations and potentially face retaliation. Some proposals 
present unabashed violations like the bill that would require 
the U.S. not to comply with WTO appellate body decisions 
prohibiting the practice of zeroing an investigation. I just 
don't see how we can expect China to comply with WTO rulings 
when we thumb our nose at the adverse decisions we don't like.
    Other proposals are a bit more subtle, like the bill that 
would apply the CVD law to nonmarket economies like China, 
which I support, but the bill mandates that commerce measures 
the subsidy benefit irresponsibly and leave it powerless to 
address instances of double counting. I haven't even mentioned 
the China currency bills. The USTR, Commerce and Treasury seem 
to have removed all doubt there. However, as they recently 
informed lawmakers that this legislative approach appears to 
raise serious concerns under international trade remedy rules 
and could invite WTO sanctioned retaliation against U.S. goods 
and services. It would also substantially weaken the position 
of the United States in our ongoing efforts to achieve 
essential economic reforms in China and around the world while 
jeopardizing our rapidly growing exports. I would like to put 
this important letter in the record.
    Retaliation would come through mere legislation that would 
increase duties on our exports and through withdrawal of trade 
concessions like intellectual property protection. Either way 
it would hit our exporters hard.
    In the first quarter 2007, U.S. exports to China were up 15 
percent from the first quarter of 2006. Last year U.S. exports 
to China grew at a faster rate than imports from China did. But 
even before we start talking about retaliation, we ought to 
recognize that increasing duties on Chinese imports to unfairly 
and artificially high levels hurts globally integrated 
companies that rely on imports to stay competitive. Not only 
does it hurt them, it harms the U.S. economy.
    Thank you, Mr. Chairman.
    Chairman LEVIN. Thank you, this will be entered in the 
record.
    [The information follows:]
    Chairman LEVIN. By the way, let me indicate that the 
Democratic Caucus started at 9:00 so some of my Democratic 
colleagues will be joining us later. So, we have the first 
panel of Members of this Congress. The Honorable Debbie 
Stabenow, a U.S. Senator from Michigan. Artur Davis, my 
colleague from Alabama. Duncan Hunter, we welcome you, a 
veteran Member of this House, as well as Pete Visclosky, our 
colleague from Indiana.
    Mr. HERGER. When you finish could I interject?
    Chairman LEVIN. Go ahead.
    Mr. HERGER. Mr. Dreier is unable to testify today because 
he is managing time on a rule on the floor, and I would ask 
unanimous consent to insert his statement into the record.
    Chairman LEVIN. Without objection.
    [The prepared statement of Mr. Dreier follows:]
                Statement of The Honorable David Dreier,
        Representative in Congress from the State of California
    As the world's largest country and the world's fastest-growing 
trade juggernaut, it is not surprising that China would get the most 
scrutiny. But if we put aside the hyperbole and misinformation that 
generally characterize the China trade debate and actually scrutinize 
the facts, what we find is tremendous progress and even greater 
potential.
    Since China joined the WTO in 2001 and willingly bound itself to an 
international system of rules-based trade, it has become our fastest-
growing major trading partner. While the economies of our trading 
partners in Western Europe have stagnated under the weight of 
increasingly managed economies, China has represented the one major 
opportunity for export growth for American producers. From 2001 to 
2006, U.S. goods exports to China grew 188 percent--nearly five times 
our growth in exports overall.
    No other top ten trading partner comes close to matching this 
growth. Forty-one percent growth for Canada.
    Twenty-two percent for France. Less than 4 percent for Japan. 
Without China, the U.S. would have had no opportunity for significant 
export growth over the last half decade. Because of our engagement, 
China has grown to be our 2nd largest trading partner and 4th largest 
export market. And this significant export growth has been widespread 
throughout the entire U.S. For 49 of the 50 states, export growth to 
China has far outpaced their overall growth in exports.
    The brisk pace of growth has been a boon to American producers and 
workers, particularly in the high-tech and heavy manufacturing sectors, 
which constitute our top exporting industries to China. There has been 
perhaps no better example of the importance of trade with China to our 
economy than Peoria, IL-based Caterpillar, Inc. In recent years, 
Caterpillar has expanded its presence in China significantly and has 
doubled its Chinese workforce.
    By being on the ground and engaging directly with the Chinese, it 
has increased demand for its American-produced machinery, resulting in 
an increase of exports to China by 40 percent.
    This tremendous export growth has enabled them to create 5,000 new 
jobs here in the U.S.--jobs that couldn't be supported without a 
trading relationship with China. In total, Caterpillar employs 48,000 
Americans here at home in high-paying, high-quality jobs. With 95 
percent of the world's consumers outside of the U.S.--and 20 percent of 
them in China--U.S. companies, and the workers they employ, cannot 
afford to disengage from our fastest growing major trade relationship. 
The Caterpillar example demonstrates not only that the U.S. wins by 
trading with China, but that it is not a zero-sum game. Increased 
growth in China leads to greater growth in the U.S. And jobs created in 
China lead to jobs created here at home.
    Furthermore, by drawing China into a rules-based system, we have 
been able to effectively demand that substantive economic reforms be 
made. A tremendous amount of work remains. Protection of intellectual 
property and reforming the banking sector to allow for a floating 
currency are the most prominent challenges. We must be vigilant in our 
efforts to hold them to their commitments, and take legal action 
through the WTO when appropriate. The U.S. led the first attempt to 
subject China to WTO dispute settlement, and we were successful in 
forcing Chinese concession in that case. In a rules-based trading 
system, the good actors have the carrot and the stick at their 
disposal. If we cede our role as the global trade leader, we forfeit 
both the carrot and the stick. There is no denying that trade with 
China, like all trade, disperses benefits to all, while presenting 
challenges to some. A strong, growing, globally engaged economy is 
extremely dynamic, with tremendous opportunity on one hand and 
uncertainty on the other.
    But the benefits not only far outweigh the challenges; they create 
the means to address those challenges. Our strong economic growth 
enables us to invest in innovation, improve the quality of education at 
all levels and ensure that workers are constantly learning the skills 
they need to succeed. The consequences of our disengaging would be 
disastrous--for us and the Chinese. We would lose our fastest growing 
export market. We would lose access to the low-cost goods that help 
working families make ends meet. And perhaps most important, we would 
lose our leverage and our authority to hold China accountable and 
ensure continued reform.

                                 

    Mr. HERGER. Thank you.
    Chairman LEVIN. We will start with Senator Stabenow. I did 
receive a phone call from another Senator last night saying 
that I should respect the U.S. Senate.
    Ms. STABENOW. I won't ask you who that is, Mr. Chairman.
    Chairman LEVIN. So, we are glad you are here, please 
continue.

             STATEMENT OF THE HON. DEBBIE STABENOW,
           A U.S. SENATOR FROM THE STATE OF MICHIGAN

    Senator Stabenow. Thank you, Mr. Chairman, to all the 
Committee Members. It is wonderful to see you, and I very much 
appreciate the opportunity to talk with you today about 
something that I know, Mr. Chairman, you have been involved 
with, issues like currency manipulation long before we knew 
what the phrase was, so I thank you very much. I am very 
pleased also that Congressman Bart Stupak, Congressman Joe 
Knollenberg are here. We care deeply as a Michigan delegation 
without regard to partisanship to our great State, the people, 
the jobs, the businesses, and we come together I know with one 
voice.
    I also want to thank Congressman Hunter, Congressman Ryan 
for introducing very important legislation relating to 
countervailing duties and am pleased to join in a bipartisan 
basis with Senator Jim Bunning to introduce that bill in the 
Senate. We are hopeful that working together we will be able to 
make that a part of comprehensive legislation related to 
currency manipulation.
    In the Senate as a Member of the Senate Finance Committee, 
I am the one Member that represents the manufacturing Midwest. 
So, I feel a particular responsibility to speak to what is 
happening to manufacturing in our State and in the country. I 
am particularly concerned today, I appreciate being asked to 
speak about currency manipulation, not just with China, 
although we certainly speak of China for good reason, but I 
also must add to that Japan and other countries that are doing 
the same and in fact Japan as it relates to the auto industry, 
as the Chairman knows, is a serious, serious issue.
    Michigan has lost one-quarter of our manufacturing 
workforce, over 250,000 good paying jobs, middle class jobs, 
and we have seen our unemployment rate go from 3.7 percent to 
7.2 percent, an alarming rate, the highest in the country. We 
know that this is part of what is happening nationally where we 
have lost over 3 million manufacturing jobs nationwide and the 
real median wage has actually decreased.
    I know trade is not the only issue, we know that, Mr. 
Chairman, we know there are other challenges addressing 
healthcare costs and investing in education and innovation, but 
it is an irrefutable fact that trade violations are a very big 
negative impact on manufacturing and it costs us jobs.
    I know we have had for years this debate about open trade 
versus protectionism. But I think that is a very old debate, 
Mr. Chairman. I think we are well beyond that. My cell phone, 
my BlackBerry, my computer can jump any wall anyone would put 
up. The issue in front of us is whether or not we will have a 
level playing field, and whether or not we in the United States 
will be smart about what we do in this global economy to make 
sure our businesses have an equal chance, and we all know that 
if they do they will compete and they will win.
    We know that countries like China and Japan are cheating, 
creating artificially low prices for their goods by 
manipulating currency as well as other unfair trade practices. 
In real world terms it is simple, the said goods made with the 
same materials will cost up to 40 percent less when made in 
China, solely because of currency misalignment. That is wrong.
    The choice many business people confront is to lay off 
workers in the United States or move the production to China or 
other offending countries to neutralize the price disadvantage. 
Neither one of those is good for America. Either way our 
economy loses.
    Last week the Senate Finance Committee approved a bill that 
is a step in the right direction, and I urge your consideration 
as it comes to you. I want to commend Senator Baucus, Senator 
Grassley, Senator Schumer, Lindsey Graham for working together 
on that bill. The bill's most important provision allows the 
International Trade Commission to factor in misalignment when 
calculating anti-dumping cases.
    I think this is a very important step, but I also believe 
we can do more. I believe we must provide the additional tool 
of countervailing duties which go directly after the subsidies 
foreign governments provide their exporters. By making currency 
misalignment a countervailing duty subsidy, we will put 
pressure on governments like China and Japan to change their 
policies. Having both anti-dumping and countervailing duties I 
believe is important, not only because countries have 
misaligned currencies, but because they could maneuver around 
just one remedy possibly.
    They also need to know that countervailing duties is an 
option because for some businesses that may be their only 
option. In fact, once a country's currency has been shown to be 
misaligned, and used as an illegal subsidy, which it is, these 
facts can be easily applied to multiple cases, which also 
addresses reducing the cost for other businesses. It saves time 
and it saves money, both of which our companies need.
    Additionally, a currency manipulation is deemed an illegal 
subsidy. There is no easy way for countries to skip the 
penalties. It is not enough, however, just to have these 
remedies on the books. As we know, time and time again the 
Administration has waived penalties. As a former member of the 
Senate Banking Committee, I listened to the Treasury Secretary 
repeatedly refuse to say the obvious, that China manipulates 
its currency. Therefore, we must limit the Administration's 
discretion when it is time to take action.
    Finally, I would like to address two frequent criticisms of 
including both anti-dumping and countervailing duties in the 
same bill or companion bills. First, there is a debate about 
WTO compliance of countervailing duties. Frankly, no one knows, 
no one knows how the WTO will rule. But as you will hear from 
Members of the third panel, there are many experts who believe 
countervailing duties are consistent with our WTO obligations.
    There is also no reason to believe that the U.S. would have 
to strike both remedies if one of the remedies was ruled as 
noncompliant. I am currently working on language that would 
clarify this issue so that if one action would be ruled out of 
compliance, the other remedy would remain valid and intact, and 
that is eminently doable for us.
    Second, some have raised the issue of double counting, that 
you can't penalize a country for the same action twice. I 
believe this argument is flawed. Under U.S. law when both an 
anti-dumping order and a countervailing duty order are in 
effect on the same good, the amount of the countervailing duty 
is added to the exporter's price. That reduces the dumping 
margin and prevents any double counting.
    Mr. Chairman, in summary, by limiting Administration 
discretion and by including anti-dumping and countervailing 
duties in our enforcement toolbox, I believe we will give our 
affected companies, both large and small, the necessary tools 
to fight currency misalignment.
    I am very pleased the Senate Finance Committee and Senate 
Banking Committee have acted to address this issue, which is a 
critical jobs issue for us, as you know. I am absolutely 
convinced if we work together we can create the toughest laws 
possible to support American businesses and American workers. 
They are looking to us and we owe them no less. I thank you 
again for giving me the opportunity to share my thoughts.
    [The prepared statement of Senator Stabenow follows:]
              Statement of The Honorable Debbie Stabenow,
                U.S. Senator from the State of Michigan
    Michigan has lost one-quarter of its manufacturing workforce since 
2000 and our unemployment rate has grown from 3.7% to an alarming 7.2%. 
The highest in the Nation.
    Additionally, we have lost over 3 million manufacturing jobs 
nation-wide and the real median wage has actually decreased.
    I know that trade issues alone do not solve the manufacturing 
challenges in this country. There are other issues that need to be 
addressed, such as healthcare costs and investing in innovation.
    But, it is an irrefutable fact that trade violations are having a 
huge negative impact on manufacturing and costing us jobs.
    We know that countries like China and Japan are cheating, creating 
artificially lower prices for their goods by manipulating their 
currency.
    In real world terms, it is simple--the same good, made with the 
same materials, will cost up to 40% less when made in China solely 
because of currency misalignment.
    The choice many business people confront is to either layoff 
workers or move production to China or other offending countries to 
neutralize the price disadvantage.
    Either way, our American economy loses.
    Last week, the Senate Finance Committee approved a bill that is a 
step in the right direction.
    And, I want to commend Senator Baucus, Senator Grassley, Senator 
Schumer, and Senator Graham for their leadership on this legislation.
    The bill's most important provision allows the International Trade 
Commission to factor in currency misalignment when calculating anti-
dumping cases.
    While I believe this is a key step, I believe we can do even more.
    I believe we must provide the additional tool of countervailing 
duties, which go directly after the subsidies foreign governments 
provide their exporters.
    By making currency misalignment a countervailable subsidy, we will 
put pressure on governments like China and Japan to change their 
policies.
    Having both anti-dumping and countervailing duties is important not 
only because countries with misaligned currencies could try to maneuver 
around just one remedy, but also because countervailing duties may be 
the only option for some businesses.
    In fact, once a country's currency has been shown to be misaligned 
and used as an illegal subsidy, those facts can be easily applied in 
multiple cases. This saves time and money, both of which our companies 
need.
    Additionally, if currency manipulation is deemed an illegal 
subsidy, there is no easy way for countries to escape penalties.
    It is not enough, however, just to have these remedies on the 
books.
    Time and time again the Administration has waived penalties.
    As a former member of the Senate Banking Committee, I listened to 
the Treasury Secretary repeatedly refuse to say the obvious--that China 
manipulates its currency. Therefore, we must limit the Administration's 
discretion when its time to take action.
    Finally, I'd like to address two frequent criticisms of including 
both anti-dumping and countervailing duties in the same bill or 
companion bills.
    First, there is a debate about WTO compliance of countervailing 
duties.
    Frankly, no one knows how the WTO will rule, but as you will hear 
from members of the third panel, there are many experts who believe 
countervailing duties are consistent with our WTO obligations.
    There is also no reason to believe that the U.S. would have to 
strike both remedies if one of the remedies was ruled as non-compliant.
    I am currently working on language that will clarify this issue--if 
one action is ruled out of compliance, the other remedy will remain 
valid and intact.
    Second, some have raised the issue of double counting--that you 
can't penalize a country for the same action twice. This argument is 
flawed.
    Under U.S. law, when both an anti-dumping order and a 
countervailing duty order are in effect on the same good, the amount of 
the countervailing duty is added to the exporter's price. That reduces 
the dumping margin and prevents any double counting.
    In summary, by limiting Administration discretion and including 
both anti-dumping and countervailing duties in our enforcement toolbox, 
we will give all our affected companies--both large and small--the 
necessary tools to fight currency misalignment.
    I'm very pleased that both the Senate Finance and Senate Banking 
Committees have acted to address this critical jobs issue.
    I know that by working together we will create the toughest 
possible laws to support American businesses and American workers.
    We owe them nothing less.

                                 

    Chairman LEVIN. Thank you very, very, much.

STATEMENT OF THE HON. ARTUR DAVIS, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF ALABAMA

    Mr. DAVIS. Mr. Chairman, thank you.
    Chairman LEVIN. Whenever you want, we know you have other 
things to do. Mr. Davis, take over.
    Mr. DAVIS. Thank you, Mr. Chairman. It is always good to 
follow a Senator, we don't get to do that a lot around here.
    Chairman, let me thank you, number one, for your engagement 
on this issue. You and I have had a number of conversations on 
the floor, off the floor, and of course I know of the acute 
concern you have as a Member of the Michigan delegation, but 
you have certainly gone above and beyond that and I certainly 
thank you for giving me the honor as a colleague of yours of 
the Committee on Ways and Means to come and testify before you 
today. It certainly is good to see you as well.
    I have the honor of being the first House Member today. A 
number of us will join Senator Stabenow in talking about the 
impacts of globalization on this economy; a number of us will 
join Senator Stabenow in talking about the importance of mutual 
obligation responsibility in this modern economy. There is not 
one of us who will testify today from the Member side who would 
like to repeal the last 40 years of expanded bilateral trade 
around the world. There is not one of us who will testify today 
who wants to retreat from the obligations we have under the 
World Trade Organization. To the contrary, we want to 
strengthen trade, we want to reinforce our obligations, but I 
think all of us believe this: We believe that to do those 
things requires a fair, level playing field.
    The system is, candidly, breaking down because one of our 
major trading competitors around the world, People's Republic 
of China, has engaged in a multi-decade campaign of extensive, 
unparalleled subsidies of its industries.
    Just to single out the steel industry, just in the last 6 
years, $52.6 billion of subsidies, interest free loans, other 
direct transfers to parts of the economy that participate in 
the steel industry, you see all across the board. It is 
inconceivable in the United States that that could occur.
    What my bill, 1229, proposes to do is to give the Commerce 
Department some ability to counter this aggressive practice of 
subsidization. We would allow for the first time countervailing 
duties to be applied to nonmarket economies. Let me put that in 
plain English.
    Right now our Commerce Department has the ability to impose 
countervailing duties against virtually all of our bilateral 
trading partners around the world, virtually every trading 
partner that we have. The only exceptions are the small class 
of economies that we currently classify as nonmarket economies. 
It so happens that China is in that category. At this point, 
the only other major country in that category is Vietnam.
    I can think of no reason why we can apply countervailing 
duty sanctions against the French, against at this point the 
Russians, against the Germans, against the Japanese and a 
variety of other countries who may engage in subsidies, but we 
can't do it against the most aggressive subsidized in the 
world, the People's Republic of China. It makes no sense.
    The WTO outlaws and bans subsidies. China fought 
aggressively to join the WTO and knew what the rules were. It 
came voluntarily into a regime that prohibited subsidies. All 
we are saying is that China should now be bound by the rules.
    Let me pick up on a famous Chairman that you put on the 
table and that our colleague from Michigan Senator Stabenow 
also referenced. There is another school of thought and you see 
it in the editorial pages of the Wall Street Journal, even 
sometimes in the New York Times and the Washington Post, and it 
goes something like this. It says that we should simply trust 
in the open, unfettered trade competition around the world, we 
should simply trust in these things working out over the long 
run in the interest of our manufacturers, our employees.
    I would be content to trust, Mr. Chairman, if we had fair 
rules. Trust requires norms and standards, trust is not about 
the law of the jungle. Trust is not about survival of the 
fittest, trust is about relationships governed by enforceable 
legal standards.
    All that I seek to do is to make sure that those standards 
apply across the board, and we can make this work. We have a 
web of trade relationships around the world that strengthen our 
economy and strength the economy of our competitors. We can 
have a web of trade relationships that liberalize 
underdeveloped economies around the world. We can have a web of 
trade relationships that help draw us closer together as 
strategic partners or we can continue the path we have been on 
for the last several decades.
    So, I thank you for your interest and your engagement and 
look forward to answering questions.
    [The prepared statement of Mr. Davis follows:]
                Statement of The Honorable Artur Davis,
          Representative in Congress from the State of Alabama
    Mr. Chairman, Ranking Member Herger and fellow Members of the Ways 
and Means Committee, I appreciate the opportunity to testify today on 
H.R. 1229, the Nonmarket Economy Trade Remedy Act of 2007. This 
Subcommittee has actively investigated the issue of subsidies in 
nonmarket economies this Congress--holding a hearing on February 15 on 
``Trade with China'' and a hearing on March 15 on ``the Nonmarket 
Economy Trade Remedy Act of 2007.''
    The Nonmarket Economy Trade Remedy Act of 2007 is a bipartisan 
attempt to fix a longstanding inequity in U.S. trade law and expand 
American employers' ability to obtain trade relief. The legislation 
requires application of countervailing duty (CVD) law to both market 
and nonmarket economies, including China. In the 108th and 109th 
Congress, I proudly served as the lead Democrat on legislation to apply 
CVDs to nonmarket economies sponsored by the lead Republican on H.R. 
1229, Representative Phil English (PA-03).
    On March 30, 2007, the U.S. Commerce Department announced its' plan 
to extend countervailing duties to coated free-sheet paper imported 
from China in a preliminary decision. The decision marks the first time 
in 23 years a CVD case against a non-market economy has been initiated 
as a remedy for unfair domestic subsidies. But enactment of H.R. 1229 
is still necessary to ensure that CVDs are a reliable enforcement tool 
for the Commerce Department.
    The Nonmarket Economy Trade Remedy Act of 2007 would amend Title 
VII of the Tariff Act of 1930 to explicitly require Commerce to accept 
CVD cases against nonmarket economies. In addition, H.R. 1229 would 
create a new mechanism through which congressional approval would be 
required to implement a decision by Commerce to ``graduate'' a country 
to market economy status. Finally, the measure would direct the 
International Trade Commission (ITC) to conduct an annual study of 
Chinese government intervention to promote investment, employment and 
exports. The ITC would be directed to submit its findings to Congress 
every year through 2017.
    A study released earlier this week by the American Iron and Steel 
Institute (AISI) claims that China's steel capacity grew another 20 
percent in 2006 with total capacity reaching 600 million metric tons by 
year-end 2007 due, in no small part, to the aide of RMB 393 billion 
(US$ 52 billion) in government sponsored subsidies granted to Chinese 
steel producers. In 1990, China produced 66 million metric tons of 
steel, or less than production the United States, the European Union or 
Japan.
    Subsidies in nonmarket economies exist in numerous forms, none of 
which can constitute a basis for CVDs under current law. Examples 
include, but are not limited to: state ownership, nonperforming loans, 
price coordination, banking and finance assistance, infrastructure 
development, research and development assistance, restraints on imports 
and exports and countless others.
    This week, U.S. and Chinese officials are meeting here in 
Washington, D.C. to conduct a steel industry dialogue. At the same 
time, Treasury Secretary Paulson is currently visiting China to discuss 
many of the issues we are considering today with Chinese government 
officials. It is imperative that we as a Congress stress the deep 
concern we have with illegal subsidies that directly injure American 
manufacturers.
    A discussion of fair trade must go beyond opening up new markets 
and ensuring enhanced labor protections. Fair trade must not exempt any 
of our trading partners from our trade laws. If a country is unfairly 
subsidizing its manufacturers to the detriment of our domestic 
industries and workers, we must have all the tools available to combat 
injurious behavior. Countries like China and Vietnam should not be 
allowed to skirt U.S. fair trade laws simply because of its nonmarket 
economy status.
    Right now China, Vietnam and the other nonmarket economies get to 
have it both ways. They are dramatically underpricing their products 
and selling them in the United States while limiting our ability to 
gain a larger market share for certain products in their country. Now 
is the time to work towards a trade policy that is based on trust, 
fairness, and future prosperity for both countries. H.R. 1229 gets us 
closer to that goal.

                                 

    Chairman LEVIN. Thank you very much. Mr. Hunter, welcome.

   STATEMENT OF THE HON. DUNCAN HUNTER, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. HUNTER. Thank you, Mr. Chairman. I am pleased to join 
my colleagues today, particularly to join my colleague Mr. 
Ryan, who is my coauthor of this legislation and really the 
driving force behind it, and I want to compliment him for the 
insight that he developed last year about the importance of 
saving what I call the arsenal of democracy which I think is at 
some risk. That is our ability to manufacture products that we 
use in a time of peace for domestic purposes, but that we use 
at time of war to defend this Nation. The bill that we have 
offered, this currency manipulation bill, H.R. 2942, which is 
formally called the Currency Reform for Fair Trade Act.
    I think, Mr. Chairman, and Members of the Committee, Mr. 
Herger, this is a very important step toward assuring that this 
country has requisite security balance over the next 5 to 10 to 
15 years. Let me talk about the security implications of our 
relationship with China.
    Mr. Chairman, China is clearly cheating on trade and they 
are using American trade dollars as a massive surplus that they 
now enjoy over us on an annual basis to buy ships, planes, 
missiles and other military equipment, some of which may at 
some point face American soldiers, sailors, airmen, Marines on 
the battlefield over the next 5, 10 to 20 years.
    Now, it is clear that China is cheating on trade by 
devaluing its currency some 40 percent and I know when Mr. 
Ryan, my good colleague, talks about that, he will lay that out 
in some detail, but clearly they are cheating on trade by 
devaluing their currency by some 40 percent. That is 
undercutting American products not only on showroom floors in 
the United States but around the world.
    The result is that American industry, which comprises a 
good part of what I call the arsenal of democracy--in fact, I 
think that term was coined by FDR before the start of World War 
II when he said, we are going to turn this magnificent 
industrial machine into making warfighting equipment, but now 
that arsenal of democracy is being threatened. You know, Mr. 
Chairman, I can remember a couple of years ago when roadside 
bombs started to hurt our trips in Iraq and we sent out from 
the Armed Services Committee, we sent out our industrial teams 
to try and find an American steel company that could still make 
high grade armor steel plate to put on the sides of our 
HUMVEEs. We found one company left in this country that could 
make it. When the Swiss cut us off from the tiny crystal 
component that goes in perhaps our most important system, the 
JDAM, that is our smart bomb, we found only one company left in 
the country that could make that component. As we looked across 
the array of military disciplines and industrial base items 
that we need to keep this military strong, we saw that more and 
more of them were being pushed offshore.
    It is clear now that China is an army and they are buying 
ships, planes, missiles, they now have the F-10 high end 
fighter aircraft, that they are developing with this new found 
barrel of cash they are receiving from the United States. They 
have a coproduction program with the Russians for the Su-27, 
similarly a high end tactical fighter aircraft. They are 
building more than 100 short range ballistics missiles each 
year, have several long range ICBMs, some of which will be 
targeted on American cities now being rolled out for initial 
deployment. They have a lot of submarines under construction, 
some of them nuclear attack submarines.
    I think a lot of the Members of the House know they blew a 
satellite out of space on January 11th and that signified I 
think a new era of military competition between the United 
States and China in space whether we like it or not.
    So, as we see the American industrial base fracture and 
move offshore, largely to China, I think that we have to 
understand that there will be security ramifications which will 
follow as a result of that.
    For example, China now has a massive shipbuilding 
capability utilized mainly for production of domestic ships. If 
they turn or translate that domestic shipbuilding capability 
into the manufacture of warships, we will see them in a 
position to outstrip the United States at a very rapid rate, 
building ships for roughly $.30 on the dollar compared to what 
it would cost in the United States and being able to outstrip 
us by a very large degree in terms of quantity.
    So, Mr. Chairman, I am also taken by the recent reports 
that have just come out in the press that show that China is 
moving weapons through Iran to insurgents who are fighting the 
United States in Iraq and Afghanistan, that presumably we 
complained to the Chinese government about this movement of 
weapons, some of which will be used to kill Americans on the 
battlefield, and I think we should understand that China's 
foreign policy goals are not always friendly nor consistent 
with the United States.
    This acquiescence on our part in terms of allowing them to 
take large pieces of our industrial base that we may need at a 
later time for national security is I think one of the most 
egregious policy errors that we have made in 15, 20 years. So, 
I think this bill that we put together--largely I want to 
compliment my great colleague, Mr. Ryan, who sits on the Armed 
Services Committee, has been a longstanding Member of the Armed 
Services Committee, and I know cares about national security, 
for really being the driving force behind putting this 
legislation together. I think it is excellent legislation and 
very simply calls it like it is: Massive devaluation of your 
currency is a species of government subsidy, and this 
legislation would put real teeth into the ability of American 
industry and the American government to countervail that 
illegal activity by China and clearly Mr. Bernanke himself said 
that this currency manipulation is a specie of subsidy and that 
we therefore have license, legitimate license, under existing 
world trade rules to act against it, and that is what our bill 
does.
    I thank you for letting me put my two cents in, and I know 
Mr. Ryan and my colleague will expand.
    [The prepared statement of Mr. Hunter follows:]
               Statement of The Honorable Duncan Hunter,
        Representative in Congress from the State of California
    Mr. Chairman and Ranking Member, I would like to thank you for 
holding this hearing on an issue of utmost importance to U.S. 
manufactures, the future of our domestic industrial base and, 
ultimately, our national security. I welcome this opportunity to join 
my friend and colleague Tim Ryan in testifying on behalf of our 
legislation, H.R. 2942, the Currency Reform for Fair Trade Act, which 
will end the illegal practice by some of our trading partners, 
particularly China, of manipulating their currency in order to gain a 
competitive advantage against U.S. products.
    First, I would like to share my perspective on our current trade 
policy with China; the implications for the U.S. defense industrial 
base; and how China is using American greenbacks to modernize its 
military.
    This issue is complex. There are folks, like myself, who see a 
near-peer economic and military competitor and then there are those on 
the other end who see China as a vast economic opportunity.
    Those who share my view have watched China expand the pace and 
scope of its economic and military modernization efforts, have focused 
on China's near and longer-term strategic aspirations in the region and 
around the world, and have likely made the following observations:
    First, China's rapid economic growth, its devaluation of the yuan, 
and its military modernization efforts are ``gouging'' the American 
defense industrial base.
    Second, China's is using proceeds from its growing wealth and gains 
from trade with the United States to develop military power projection, 
anti-access and aerial denial capabilities.
    Third, the United States has exported critical defense components 
and technologies to China, which increases our dependency on China for 
our own defense needs.
    Lastly, by moving defense factories and businesses abroad to 
nations such as China, we have jeopardized America's domestic 
capability to rapidly increase defense production during a time of war.
China is cheating on trade by devaluing its currency
    From 1994 to 2006, China's trade surplus rose from $30 billion to 
$232 billion--almost an eight-fold increase--and is expected to 
increase this year. This trading deficit is now larger than that with 
any other U.S. trading partner. One element that contributes to this 
trade deficit--China is cheating. China's currency--the yuan--is 
significantly undervalued by at least 40%, making it difficult for 
American manufacturers to compete fairly in the global market. It is 
this uneven playing field that undercuts American markets and wipes 
American products off the world's shelves. The result is we've lost 
high-paying manufacturing jobs in the U.S. to China.
    In some cases, this currency manipulation results in Chinese 
imports costing less on American shelves than the cost of the inputs 
going into the product. It was this exact situation that led Federal 
Reserve Chairman Ben Bernanke to call China's currency manipulation an 
``implicit subsidy'' in the written version of his speech before the 
Chinese Academy of Social Sciences in Beijing, China on December 15, 
2006.
    It is for these reasons that Congressman Tim Ryan and I introduced 
H.R. 2942, the Currency Reform for Fair Trade Act of 2007. Our bill is 
a WTO consistent remedy to this pervasive problem of currency 
manipulation. Specifically, H.R. 2942 will:

      Stipulate that countervailing duty trade cases targeting 
government subsidies can be brought against nonmarket economies such as 
China.
      Defines currency misalignment.
      States that currency misalignment by any country is a 
countervailable government subsidy.
      Allows currency misalignment to be taken into account in 
antidumping cases, which has directly impacted the competitiveness of 
U.S. products.
      Requires the Treasury Department to take more aggressive 
actions to deal with currency misalignment than is the case under 
current law and enhances Congressional oversight of Treasury Department 
actions.

    The Currency Reform for Fair Trade Act of 2007 will level the 
playing field for American companies and end the one-way street 
advantage held by many of our trading partners, and particularly China. 
Urgent action on this bill is necessary and I strongly encourage you, 
Mr. Chairman, to move forward aggressively to pass this legislation and 
provide much needed relief to American manufacturers and their 
employees. Their viability and future success depends on it.
    In addition, I would like to take this opportunity to highlight 
another aspect of how this currency manipulation is harming the 
American people. The Chinese are taking U.S. trade dollars and 
drastically modernizing their military.
China is using American ``greenbacks'' to fund its military 
        modernization efforts
    China is using billions of American trade dollars to modernize its 
military force--from purchasing foreign weapons systems and 
technologies to indigenously building its own ships, planes, and 
missiles. China's economic growth has enabled it to sustain a trend of 
double-digit increases in defense spending. In March 2007, China 
announced that it would increase its annual defense budget by 17.8% 
over the previous year to $45 billion.
    This figure is widely accepted as a low estimate of China's defense 
spending. The recent Department of Defense's Annual Report on The 
Military Power of the People's Republic of China estimated that China's 
total military-related defense spending is more likely in the range of 
$85 to $125 billion.
    What is China buying? Here is a short shopping list of how China is 
spending its U.S. trade dollars: Russian-made SOVREMENNY II guided 
missile destroyers fitted with anti-ship cruise missiles--providing 
China with a capability to challenge American aircraft carriers; 
submarines, such as the KILO-class diesel submarine; a battalion of S-
300PMU-2 surface-to-air missile systems with an intercept range of 200 
kilometers; AWACS aircraft with air-to-air refueling capability; and 
sophisticated communications equipment.
    On the other side of the military modernization equation--American 
trade dollars are facilitating China's ability to mature their domestic 
defense industrial base. During a June 2007 House Armed Services 
Committee hearing, I shared my concerns with Deputy Under Secretary of 
Defense Richard Lawless regarding China's maturing and massive 
commercial industrial capability, especially in the area of its ship 
construction capacity which could likely be translated into a warship 
construction capability and could threaten our ability to maintain a 
naval dominance in the Pacific region. In response, Secretary Lawless 
noted that countries such as Japan and the Republic of Korea, currently 
the world's leaders in shipbuilding capacity and capability, are now 
readjusting their projections from a belief that China will be a top-
rank shipbuilding competitor in the next six years rather than the 
fifteen originally projected. It is clear that China's economic growth 
is fueling its capacity to purchase foreign weapons and technology 
while improving its indigenous capacity for a self-sufficient defense 
industrial base.
The erosion of the U.S. Arsenal of Democracy
    A large portion of America's industrial base is now moving to 
China, including part of the industrial base that we rely on for the 
American security apparatus. This Nation is at war and our brave 
military men and women are conducting missions around the world. But 
today we defend freedom in the absence of a robust U.S. ``arsenal of 
democracy''. Beginning with my father's generation through the Cold 
War--we depended on an American manufacturing base to produce the 
tanks, armored vehicles, and rounds of ammunition to equip our troops, 
and depended on American research and development (R&D) to ensure our 
military technologies kept our forces on the cutting edge. Today, if 
you want to find where critical elements of our arsenal of democracy 
have gone, you must look beyond America's shores to places like China.
Conclusion
    Passage of the Currency Reform for Fair Trade Act represents a 
critical and necessary step towards ensuring U.S. manufacturers are 
competing on a level playing field while, at the same time, preventing 
any further erosion of our domestic manufacturing base. H.R. 2942 is a 
bipartisan, widely supported legislative response to our 
disproportionate trade relationships and the clear advantage gained 
through currency manipulation. As I have articulated, non-action will 
have consequences as more of our Nation's arsenal of democracy moves 
overseas in order to promote the economic interests of our trading 
partners. This is not only an economic crisis for so many of our 
domestic manufacturers, their employees and the communities where they 
are based, it is also a national security threat that we ignore at our 
own peril. The time has come to act.
    Thank you again for giving me this opportunity to address the 
Committee and I look forward to working with you over the coming weeks.

                                 

    Chairman LEVIN. Thank you. I have been informed we may have 
votes within 10 or 15 minutes. So, if each of our colleagues 
could try to do it in 5 minutes or less.
    I guess, Mr. Visclosky, you are the first to feel that 
pressure, but we welcome you very, very much. This is not your 
first time here. Please carry on.

   STATEMENT OF THE HON. PETE VISCLOSKY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF INDIANA

    Mr. VISCLOSKY. Mr. Chairman, I want to thank you and Mr. 
Herger as well as all the Members of the Subcommittee for 
inviting me to testify today. I last testified before you on 
March 15th. I am always shocked that people ask me back. I 
applaud your efforts to continue this discussion and place 
priority on your agenda for Chinese trade legislation. We have 
a myriad of problems involving a large number of countries, but 
I would want to also focus my remarks on the country of China 
and trade and steel.
    I find it no coincidence that today the Administration 
remains enthralled by an enchanting dialogue with the Chinese 
to discuss trade between our countries. When I last testified 
before you, I enumerated repeated Administration references to 
said dialogue. As Ulysses overcame the songs of the Sirens, we 
must resist China's song of dialogue and add comprehensive 
trade legislation that will prevent our economy from being 
crushed upon the rocks.
    My appearance here today as Chairman of the Congressional 
Steel Caucus, a bipartisan group of 110 Members of Congress, 
should stress the importance and support for trade legislation 
to address the entire problem today. As the Administration 
continues its dialogue with the Chinese, Chinese crude steel 
production has more than quadrupled. China has built an 
equivalent of three entire American steel industries in just 10 
years.
    During this time, China has exceeded their own demand for 
steel and is now a net exporter. These increases in steel 
production have come during periods of immense government 
subsidization of China's steel industry. Reports, some from the 
China government itself, detail preferential loans, debt 
forgiveness, raw material market subsidies, energy subsidies 
and direct government ownership of steel companies.
    Two days ago I testified before the International Trade 
Commission as they reviewed current anti-dumping and 
countervailing duty orders on hot-rolled steel against 11 
countries, including China. The public report shows that 
imports of hot-rolled steel from China have remained low for 
the past 5 years because of the anti-dumping orders. 
Additionally, the Department of Commerce has determined that 
China would again dump its products if current orders were 
removed.
    I am very encouraged by the legislation that has been 
introduced. When the price is fair, the imports aren't there 
from China. Chinese producers don't want to compete at a fair 
price. Chinese producers can't compete at a fair price. Chinese 
producers should not be allowed to compete at unfair prices.
    I do appreciate the legislation, H.R. 1229, introduced by 
Representatives Davis and English, as well as H.R. 2942, the 
Currency Reform for Fair Trade Act introduced by 
Representatives Ryan and Hunter. I am a proud cosponsor of 
these measures and believe that they are essential.
    As the Subcommittee knows, H.R. 1229 would improve the 
tools available to U.S. manufacturers in order to defend 
against illegal imports. Further, H.R. 2942 would help to 
eliminate the unfair advantage that Chinese producers have 
gained due to their government's manipulation of their 
currency.
    We must ensure anti-dumping and countervailing duties are 
explicitly applicable to China and other nonmarket economies, 
and I would encourage the Subcommittee to report strong 
legislation to deal with currency manipulation, treating it as 
a subsidy and making adjustments in dumping cases to account 
for such unfair practices. We must ensure there are no 
unnecessary hurdles to prove U.S. industries and workers are 
injured by unfair trade.
    Again, I thank you very much for this opportunity to 
testify today.
    [The prepared statement of Mr. Visclosky follows:]
               Statement of The Honorable Pete Visclosky,
          Representative in Congress from the State of Indiana
    Thank you Chairman Levin, Ranking Member Herger, and Members of the 
Subcommittee for the opportunity to testify before you with respect to 
this critical hearing that I hope will result in comprehensive Chinese 
trade law reform. I was last here on March 15, 2007, when you were 
discussing H.R. 1229, the Nonmarket Economy Trade Remedy Act of 2007. 
During that testimony, I stated that that H.R. 1229 was an essential 
first step, but more was needed. I further went to lengths to stress 
how China was adversely affecting the U.S. steel industry and 
manufacturing generally. I applaud your efforts to continue this 
discussion and place priority on your agenda for Chinese trade 
legislation.
    I find it no coincidence that today, the Administration is holding 
enchanting ``Dialogue'' with the Chinese to discuss trade between our 
two countries. I have been consistently discouraged with how the 
Administration takes no action against China's blatant actions to 
subsidize their steel industry and manipulate their currency. To 
continue the analogy from my previous testimony, Ulysses overcame the 
songs of the Sirens by having his crew stuff their ears with wax and 
tying himself to the mast of his ship as they sailed on. We must resist 
China's songs of ``Dialogue'' and enact comprehensive trade legislation 
that will prevent our economy from being crashed upon the rocks.
     My appearance here today as the Chairman of the Congressional 
Steel Caucus, a bipartisan group of 110 Members of Congress, should 
stress the importance and support for trade legislation to address the 
entire problem of today. If we are to maintain a manufacturing base in 
the United States, we must have zero tolerance for unfair and illegal 
trade. We need to address the imminent challenges facing the steel 
industry. Words are not enough.
    As the Administration continues to ``Dialogue,'' Chinese crude 
steel production has more than quadrupled, growing from an estimated 
100 million Metric Tons (MT) in 1996 to approximately 500 million MT in 
2006. In other words, China has built the equivalent of three entire 
American steel industries in just ten years. China's share of world 
steel production, which was estimated to be one-eighth in 1996, 
mushroomed to over one-third in 2006. This industrial growth is 
unprecedented in history. During this time, China has exceeded their 
own demand for steel and became a net exporter of steel in 2006.
    It is no coincidence that these increases in steel production have 
come during periods of immense government subsidization of China's 
steel industry. This issue is perhaps the most crucial problem facing 
the global steel industry, as well as many other industries, today. 
Reports, some from the Chinese government itself, detail preferential 
loans, debt forgiveness, raw material market subsidies, energy 
subsidies, and direct government ownership of steel companies.
    There is currently a trade deficit of more than $200 billion with 
China. Our country has lost more than 3 million manufacturing jobs. We 
must act now to prevent any further violations of international trading 
laws.
    Two days ago, I testified before the International Trade Commission 
as they reviewed current antidumping and countervailing duty orders on 
hot-rolled steel against several countries, including China. The public 
report shows that imports of hot-rolled steel from China have remained 
low the past five years because of the antidumping orders. But, imports 
of other steel products from China not subject to any orders have 
surged. Additionally, our own Department of Commerce has already 
determined that China would again trade unfairly if they had the 
chance.
    From 2005 to 2006 Chinese steel imports have increased almost 3 
million net tons, with drastic increases in corrosion-resistant steel 
and cold rolled steel. Specifically, from 2005 to 2006, U.S. imports of 
Chinese corrosion-resistant steel increased from 154,000 net tons to 
803,000 net tons, a difference of 649,000 net tons. In the same time 
frame, U.S. imports of Chinese cold-rolled steel increased from 86,000 
net tons to 250,000 net tons, a difference of 164,000 net tons. By 
contrast, the U.S. imported less than 7,000 net tons of hot-rolled 
steel from China last year. These numbers do not lie. When the price is 
fair, the imports aren't there. Chinese producers don't want to compete 
at a fair price. Chinese producers can't compete at a fair price. 
Chinese producers should not be allowed to compete at unfair prices.
    I am very encouraged by the legislation introduced by Rep. Artur 
Davis and Rep. English, H.R. 1229, as well as the legislation 
introduced by Rep. Tim Ryan and Rep. Hunter, H.R. 2942, the Currency 
Reform for Fair Trade Act of 2007. I am a proud cosponsor of these two 
measures, and believe that they are two of the most important proposals 
for the steel industry in recent years.
    As this Subcommittee knows, H.R. 1229 would improve the tools 
available to U.S. manufactures in order to defend against illegal 
imports. The most important of these tools is the application of 
countervailing duties to nonmarket economies. This would provide for 
the assessment of import duties in an amount equivalent to the amount 
of the subsidy received on that imported product. As this Subcommittee 
was made aware during its previous hearings, there are very clear 
reasons for this attention.
    Further, H.R. 2942, the Currency Reform for Fair Trade Act of 2007, 
would help to eliminate the unfair advantage that Chinese producers 
have gained due to their government's daily manipulation of their 
currency. This problem has grown to be so massive that economists, such 
as Dr. Peter Morici of the University of Maryland, believe the Yuan 
could be undervalued by 30 to 50 percent. The opportunity is before you 
to address this problem of currency manipulation, which acts as a 
weight around the neck of every American manufacturer.
    China is the single biggest violator of fair trade laws. It is 
estimated that more than 80 percent of imports subject to new 
antidumping orders since 2004 have involved China. We must ensure that 
antidumping and countervailing duty laws are explicitly applicable to 
China and other nonmarket economies. We must enact strong legislation 
to deal with currency manipulation, treating it as a subsidy and making 
adjustments in dumping cases to account for such unfair practices. We 
must censure World Trade Organization decisions that apply the 
``zeroing'' antidumping methodology. The U.S. should not be 
implementing these over-reaching decisions that threaten to eviscerate 
our unfair trade laws. Finally, we must ensure that there are no 
unnecessary hurdles to prove that U.S. industries and workers are 
``injured'' by unfair trade.
    China deserves no special treatment. It is our responsibility as 
Members of Congress to ensure that American workers and manufacturing 
industries have the strongest possible trade legislation to compete on 
a level playing field.
    I know that the U.S. has the most efficient, productive, and 
skilled steel industry in the world. But even with that edge, our 
producers cannot prevail in a contest where only they have to play by 
the rules. If our companies cannot count on a level playing field, then 
U.S. manufacturing has no long-term future. Now is the time to 
strengthen our trade laws. Our workers are counting on us. All the 
American people are counting on us. Thank you again for the opportunity 
to appear before this Subcommittee today.

                                 

    Chairman LEVIN. Thank you very much. Mr. Regula, welcome.

  STATEMENT OF THE HON. RALPH S. REGULA, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Mr. REGULA. Thank you, Mr. Chairman. I want to say I am not 
here on behalf of Smoot-Hawley. I'm here on behalf of fairness. 
What is happening is WTO is adopting a practice similar to if 
you were stopped for speeding and were going 45 miles per hour 
in a 35 mile per hour zone. You would say, well, I was only 
doing 35 10 minutes ago, therefore you have to average it, and 
therefore you can't tell me that 45 is speeding. That is in 
essence what is happening, and this bill is designed to say in 
effect that the Department of Commerce should insist with the 
WTO that for purposes of determining if there is dumping that 
you do it on the incident involved. Are they selling for less 
than 100 percent of cost? I think that is just a matter of 
fairness.
    You obviously have China today, and for many decades we 
required 100 percent of duties to equal 100 percent of what it 
should cost. I think it is very important that we say to the 
WTO, you have to use that practice. It is only a matter of 
being fair. You don't get credit because you didn't dump last 
week, you have to deal with the situation as it is. I think it 
is very important that we legislatively say that.
    I would like unanimous consent to submit my full testimony. 
I know you are under time constraints.
    What is happening is that the WTO is undermining our trade 
laws by what I might call averaging and saying, okay, you 
haven't been dumping for a month now, so we will not charge you 
for dumping today. I think every incident of dumping has to 
stand on its own merits or demerits, whichever way you want to 
put it. Therefore I would urge that your legislative package 
include that it is U.S. policy that each dumping case has to be 
evaluated by WTO on its merits and that issue and not using an 
averaging way to achieve that objective.
    [The prepared statement of Mr. Regula follows:]
                Statement of The Honorable Ralph Regula,
           Representative in Congress from the State of Ohio
    Mr. Chairman:
    Thank you for the opportunity to provide testimony before the 
Committee today. I appreciate your leadership on trade issues and am 
here to express my support for a strong bipartisan trade bill that 
levels the playing field with China and gives American manufacturers 
and workers a fair chance to compete.
    While the purpose of this hearing is to review a number of 
important issues related to China, I would like to focus my comments on 
the issue of zeroing and its impact upon U.S. industry, specifically, a 
bill which I have cosponsored, H.R. 2714.
    Through a series of decisions, the World Trade Organization (WTO) 
Appellate Body is attempting to undermine U.S. antidumping duty law by 
forcing the U.S. to collect less than 100 percent of dumping duties 
owed. Instead, they claim that there must be a reduction in the amount 
of actual dumping found by ``crediting'' for or deducting ``non-
dumped'' amounts. This would mean, dumped sales would be masked by non-
dumped sales. This change would significantly weaken the law and ensure 
that no effective remedy would be available in situations of widespread 
dumping.
    For decades, the U.S. has required the collection of duties equal 
to 100 percent of the dumping found once orders are in place. U.S. law 
specifically requires the exclusion of offsets for non-dumped sales 
when calculating margins based on an average to average comparison. The 
Appellate Body decisions mandating a lower level of protection is 
inconsistent with U.S. policy and ignores U.S. law which has been in 
place for 85 years, long before the establishment of the WTO Appellate 
body. Congress has expressed concerns about dispute decision-making in 
the WTO in the trade remedy area where decisions have created 
obligations the U.S. never agreed to in negotiations. This sentiment is 
reflected in the directives contained in the Trade Act of 2002.
    As the Committee seeks to strengthen our trade laws to better 
address China's unfair trade practices, it is essential that any 
legislation it considers include measures to address these harmful 
decisions from the World Trade Organization. That is why I urge the 
Committee to act upon H.R. 2714. This bill is designed to remedy a 
series of adverse WTO decisions that have gone beyond the mandate of 
that organization and if fully implemented and enforced by the 
Department of Commerce will chip away at America's ability to restore a 
fair trade relationship with China. Furthermore, this bill supports 
United States Trade Representative (USTR) policy to reverse these 
problematic decisions and restore the rights and obligations that the 
U.S. negotiated at the WTO and that Congress established in U.S. law. 
Simply put, this legislation would correct violations by China 
regarding our zeroing practices through negotiations within the WTO in 
order to clarify U.S. rights.
    If not addressed, this issue will seriously undermine our trade 
laws. Manufacturers in 45 of our 50 states will be affected by the 
recent WTO decision on the practice of zeroing and the proposed 
administrative fix by the Department of Commerce in terminating the 
practice. In Ohio alone, the following industries will be negatively 
impacted:

      Antifriction Bearings
      Cased Pencils
      Corrosion-Resistant Carbon Steel Flat Products
      Hot-Rolled Carbon Steel Flat Products
      Oil Country Tubular Goods, Other Than Drill Pipe
      Small Diameter Carbon and Alloy Seamless Standard, Line, 
and Pressure Pipe
      Stainless Steel Sheet and Strip in Coils
      Steel Concrete Reinforcing Bars

    My district in Ohio has 4,500 bearing jobs directly affected by 
this issue, and statewide approximately 6,200 jobs.
    Ohio is proud to be home to thousands of workers employed in the 
manufacturing industry. Without a remedy against illegal Chinese trade 
practices the jobs of Ohioans and many others across the country are at 
risk. I look forward to working with you to include the provisions of 
H.R. 2714 in any larger China legislation that moves through this 
Committee.

                                 

    Chairman LEVIN. Thank you very much and thank you to all of 
you.
    The next grouping of our colleagues, will you join us and 
let us launch right in. We will start with you while your names 
are being placed in front of us so we will know you. We will 
just start. We are not sure when the vote will occur.
    There is new news. I am now told the vote will not be at 
9:45, but 10:45, hopefully it will be 11:45. I am not sure what 
the order is. Let us go from left to right, we start with 
seniority.
    Mr. Knollenberg.

 STATEMENT OF THE HON. JOSEPH KNOLLENBERG, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. KNOLLENBERG. We will start from the right to left, but 
that is great.
    Chairman LEVIN. No comment on that.
    Mr. KNOLLENBERG. Thank you very much. I want to thank you 
for allowing us to come in today. I particularly want to thank 
the Ranking Member and all the Subcommittee Members who are 
here today. I thank you for the opportunity because this 
legislation affecting trade with China and specifically my 
bill, H.R. 1127, the American Manufacturing Competitive Act, is 
one thing that I think should get a greater hearing.
    As this panel moves forward with drafting China trade 
legislation, it should include provisions that promote American 
manufacturing. As Chairman Levin knows very well, our home 
State of Michigan isn't a one State recession. Even though 
neighboring manufacturing States have seen some modest 
programs, Michigan's economy remains stagnant. Much of that can 
be attributed to the struggles of the auto industry on which 
our economy is primarily dependent.
    Auto manufacturers and their suppliers are struggling to 
compete in the global market. Despite their struggles, our 
flawed trade policies have actually hurt U.S. auto makers and 
manufacturers from locking them out from key decisions in trade 
policy, particularly regarding the price of steel. Our trade 
policies prevent the domestic auto industry from weighing in on 
how our trade policies affect them.
    Before I discuss my bill, let me provide some perspective 
between the domestic auto industry and the domestic steel 
industry. There are more than 9 million people employed in U.S. 
industries that consume steel and 1.3 million people work in 
the automotive industry alone as compared to roughly between 
100 and 150,000 workers in the steel industry. The U.S. auto 
and auto parts industry has lost approximately 250,000 jobs 
since 1999. That is more than the entire steel producing 
industry.
    When the U.S. International Trade Commission reviews an 
anti-dumping or countervailing duty, they actually ignore 
domestic users such as Ford, General Motors, Chrysler and their 
suppliers.
    I do want the Chairman and the Committee to know that I do 
not oppose anti-dumping and countervailing duty orders in 
general and believe that many of them serve a very, very 
important purpose, but too many are outdated and the process 
allows them to become a kind of protectionist mechanism.
    There are now over 150 different import restrictions 
covering over 20 steel products from over 30 nations. Some of 
these have been in effect since the 1980s. Further, between 
1998 and 2000, commerce lifted tariffs in only 2 of 314 cases 
it reviewed.
    The system for reviewing duties and tariffs should be 
designed to be fair and equitable. Both domestic producers and 
domestic users should have a seat at the table, both opinions 
should be taken into account. That is why I introduced H.R. 
1127, the American Manufacturing Competitiveness Act. These are 
two fundamental fairness components within the bill.
    First, the bill promotes the simple fact that commerce and 
the ITC should at the very least listen to how duties affect 
their businesses. We are not trying to give consumers an 
advantage at the hearing and throughout the process, but we are 
trying to level the playing field. To that end the bill simply 
gives domestic manufacturers standing at ITC hearings.
    The second issue that the AMCA Act extends is sound 
economic policy. Shouldn't our trade policies affect the entire 
U.S. trade economy as a whole, instead of favoring specific 
narrow industries? That is why the American Manufacturing 
Competitiveness Act instills an economic impact test. It simply 
requires Commerce and the ITC to consider a trade remedies 
affect on domestic manufacturers and the overall economy 
compared to the benefits to the producing industry.
    If a negative impact on the domestic manufacturing industry 
or the overall economy is greater than the positive impact to 
the producers, then no trade remedy would be necessary, would 
be granted either. Adding an economic impact test would prevent 
situations where trade remedy protection for one segment of the 
economy produces severe negative impacts to others.
    In drafting trade legislation, this Congress and 
Subcommittee should promote provisions that support domestic 
manufacturers. In fact, I would argue that we couldn't do more 
to help the U.S. auto industry than to stop Japanese currency 
manipulation that provides a 4,000 to 15,000 cost advantage to 
Japanese vehicles exported to the United States.
    However, considering the question at hand, inclusion of the 
American Manufacturing Competitiveness Act into upcoming China 
trade legislation is a good first step at leveling the playing 
field and helping domestic manufacturers.
    I want to thank you, Mr. Chairman, again for allowing us 
here today and thank the panel for this opportunity, and I will 
look forward to any questions you may have.
    [The prepared statement of Mr. Knollenberg follows:]
             Statement of The Honorable Joseph Knollenberg,
         Representative in Congress from the State of Michigan
    Mr. Chairman, Committee members, thank you for the opportunity to 
testify today on legislation affecting trade with China, and 
specifically my bill, H.R. 1127, the American Manufacturing 
Competitiveness Act. As this panel moves forward with drafting China 
trade legislation, it should include provisions that promote American 
manufacturing.
    As Chairman Levin knows, our home state of Michigan is in a one-
state recession. Even though neighboring manufacturing states have seen 
some modest progress, Michigan's economy remains stagnant. Much of that 
can be attributed to the struggles of the auto industry, on which our 
economy is primarily dependent. Auto manufacturers and their suppliers 
are struggling to compete in the global market.
    Despite their struggles, our flawed trade policies have actually 
hurt U.S. automakers and manufacturers by locking them out from key 
decisions in trade policy. Particularly regarding the price of steel, 
our trade policies prevent the domestic auto industry from weighing in 
on how our trade policies affect them.
    Before I discuss my bill, let me provide some perspective between 
the domestic auto industry and the domestic steel industry. There are 
more than nine million people employed in U.S. industries that consume 
steel, and 1.3 million people work in the automotive industry alone. 
That's compared to roughly 100,000-150,000 workers in the steel 
industry. The U.S. auto and auto parts industry has lost approximately 
250,000 jobs since 1999, more than the entire steel industry.
    When the U.S. International Trade Commission reviews an antidumping 
or countervailing duty, they actually ignore domestic users, such as 
Ford, General Motors, and Chrysler and their suppliers. A few years 
ago, during one of the ITC's sunset reviews of a steel duty, several 
American manufacturers that use steel wanted to testify on the duties. 
Because of the way the system is set up, they were not allowed any 
time. Instead, they had to go to foreign steel producers and ask for 
their time to testify why the duties were having a negative impact on 
domestic manufacturers and the American economy.
    Furthermore, myself and several other members of Congress testified 
on the impact the duties were having on companies in their districts. 
Along with the steel consumers that testified, the ITC received ample 
input from those that thought the steel duties should be lifted. 
However, when the ITC's report came out, there was absolutely no 
mention of the views conveyed by steel consumers. It was as if the 
domestic manufacturers and their supporters had never testified.
    I do want the Chairman and Committee to know I do not oppose 
antidumping and countervailing duty orders in general, and believe many 
of them serve an important purpose. But too many are outdated and the 
process allows them to become a kind of protectionist mechanism. There 
are now over 150 different import restrictions covering over twenty 
steel products from over thirty nations. Some of these have been in 
effect since the 1980s. Further, between 1998 and 2000, Commerce lifted 
tariffs in only two of the 314 cases it reviewed.
    The system for reviewing duties and tariffs should be designed to 
be fair and equitable. Both domestic producers and domestic users 
should have a seat at the table. Both opinions should be taken into 
account.
    That is why I introduced H.R. 1127, the American Manufacturing 
Competitiveness Act. There are two fundamental fairness components 
within this bill. First, the bill promotes the simple fact that 
Commerce and the ITC should at the very least listen to how duties 
affect their businesses. We are not trying to give consumers an 
advantage at the hearings and throughout the process, but we are trying 
to level the playing field. To that end, the bill simply gives domestic 
manufacturers standing at ITC hearings.
    The second issue the American Manufacturing Competitiveness Act 
extends is sound economic policy. Shouldn't our trade policies reflect 
the entire U.S. economy as a whole, instead of favoring specific narrow 
industries? That's why the American Manufacturing Competitiveness Act 
instills an economic impact test. It simply requires Commerce and the 
ITC to consider a trade remedy's effect on domestic manufacturers and 
the overall economy compared to the benefits to the producing industry. 
If the negative impact on the domestic manufacturing industries or the 
overall economy is greater than the positive impact to the producers, 
then no trade remedy would be granted. Adding an economic impact test 
would prevent situations where trade remedy protection for one segment 
of the economy produces severe negative impacts to others.
    In drafting trade legislation, this Congress and Subcommittee 
should promote provisions that support domestic manufacturers. In fact, 
I would argue that we couldn't do more to help the U.S. auto industry 
than to stop Japanese currency manipulation that provides a $4,000 to 
$15,000 cost advantage to Japanese vehicles exported to the United 
States. However, considering the question at hand, inclusion of the 
American Manufacturing Competitiveness Act into upcoming China trade 
legislation is a good first step at leveling the playing field and 
helping domestic manufacturers.
    I thank the Chairman and the panel for this opportunity.

                                 

    Chairman LEVIN. Thank you. Mr. Arcuri, we welcome you, your 
first appearance I am sure before the Committee on Ways and 
Means. Welcome.

   STATEMENT OF THE HON. MICHAEL ARCURI, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. ARCURI. Thank you, Mr. Chairman, and I thank you and 
Ranking Member and all the Members for the opportunity to be 
here today.
    Since 2001, our country lost over 3 million manufacturing 
jobs, including 200,000 in New York State alone, while the 
trade deficit has grown to $759 billion. I refuse to accept 
that the loss of manufacturing jobs is inevitable as some have 
suggested. That is defeatist and wholly the wrong approach for 
any of us to embrace.
    A significant cause of this job hemorrhaging is due to many 
of the unfair trade practices utilized by China, including 
currency manipulation, foreign government subsidies, theft of 
intellectual property, and dumping of goods in our market at 
below cost.
    While my congressional district has fallen victim to 
significant manufacturing job loss over 30 years, a handful of 
companies have defied the odds and still remain open. I am 
convinced that many of these companies have chosen to stay in 
upstate New York in large part because of their loyalty to the 
community, but how long can we depend on that loyalty? At the 
end of the day, businesses are in the business of selling a 
product and making a profit.
    Many will argue that previous trade agreements like NAFTA 
are the cause of our economic woes, and that may be true, but 
that ship has sailed, that time has passed. Our domestic 
manufacturing sector faces a new threat and that threat is 
China. Without substantive action we face the possibility of 
losing thousands of more fair wage manufacturing jobs. For 
example, in my district alone the 580 jobs at Revere Copper, 
the 350 jobs at Nucor Steel, the 360 jobs at Shape Metal 
Alloys, and the hundreds of jobs at Special Metals, to name 
only a handful, are all in jeopardy if we do not address unfair 
Chinese trade practices.
    I believe our Nation's trade laws are the last line of 
defense for U.S. companies and workers competing against unfair 
foreign trade practices. These laws are based on principles 
that the international community has long agreed on. If we do 
not enforce them vigorously, we will be sending the world a 
signal that the rules do not matter and they can violate them 
at will, without repercussions.
    In light of increasing unfair trade from China and other 
foreign competitors, it is evident now more than ever that our 
laws must be updated and strengthened.
    There are a number of thoughtful and important proposals 
from the House and Senate which seek to address unfair trade 
practices.
    Based on meetings and conversations I have had with 
businesses in my district, it has become overwhelmingly clear 
to me that we need to strengthen our trade laws to ensure 
predictably when industries have been injured and seek a 
remedy. Unfortunately, predictability has been nonexistent 
under the current Administration.
    This Administration has used its discretion in all four 
special safeguard cases to deny any relief, even when the U.S. 
International Trade Commission determined that surging Chinese 
imports had caused significant market disruptions. Furthermore, 
over the past 13 years, the Treasury Department has used its 
discretion 25 consecutive times to avoid citing a single 
country for currently manipulation, often taking cover behind 
technical excuses.
    While I am realistic that there is no silver bullet 
solution to resolve these issues, one piece of legislation 
stands above the rest and ensures the predictability our 
domestic manufacturers deserve: The Currency Reform for Fair 
Trade Act, introduced by Mr. Ryan of Ohio and Hunter of 
California. As I am sure each Member of this Committee knows, 
the Ryan-Hunter bill would remove political discretion by 
applying countervailing laws to nonmarket economies like China, 
make an undervalued currency a factor in determining 
countervailing duties, and require the Treasury Department to 
identify fundamentally misaligned currencies.
    I agree that the Ryan-Hunter bill on its own will not solve 
the problem, but I would urge the Committee, as it moves 
forward, to include Ryan-Hunter language in legislation as it 
makes its way through the process.
    In addition to strong trade remedy laws, our trade policy 
must underscore the tenet of reciprocity, which has been a 
fundamental principle in U.S. trade policy beginning with the 
Reciprocity Act of 1815 and formed the basis of our global 
trading system. Reciprocity is a very simple concept 
reminiscent of the golden rule: You eliminate barriers to our 
goods and services, and we will eliminate barriers to yours. 
When countries do not honor this rule and seek to gain unfair 
advantage, the benefits of the trade system are undermined. As 
one of the most open economies in the world we must insist that 
our openness is reciprocated by other trade partners.
    Mr. Chairman and Members of the Committee, vigorous 
enforcement and strengthening of trade laws and agreements 
coupled with reciprocal treatment by our foreign partners is 
critical to building public support for expanding international 
trade.
    Together we can level the playing field for our domestic 
manufacturers; we can restore faith in the world trade system, 
we can defend the integrity of the U.S. trade laws and 
agreements and, most importantly, we can deliver the fairness 
in international trade that our citizens have a right to 
expect.
    The task before you is monumental, but under the leadership 
of Chairmen Rangel and Levin, I am confident you can address 
unfair trade practices in a way that maintains our 
international relationships while at the same time bolstering 
our Nation's manufacturing sector.
    I appreciate the opportunity to be here today to testify 
before this Committee. Thank you very much.
    [The prepared statement of Mr. Arcuri follows:]
               Statement of The Honorable Michael Arcuri,
         Representative in Congress from the State of New York
    Mr. Chairman and Members of the Committee, thank you for allowing 
me the opportunity to appear before you today.
    While I may be a new Member of Congress, it is overwhelmingly clear 
to me that this Committee, under the leadership of Chairmen Rangel and 
Levin, is dedicated to addressing the many unfair Chinese trade 
practices, which are responsible for eroding our Nation's manufacturing 
sector.
    Since 2001, our country has lost over three million manufacturing 
jobs, including 200,000 in New York State alone, while the trade 
deficit has grown to $759 billion. I refuse to accept that the loss of 
manufacturing jobs is ``inevitable,'' as some have suggested. That is 
defeatist, and wholly the wrong approach for any of us to embrace.
    A significant cause of this job hemorrhaging is due to many of the 
unfair trade practices utilized by China, including currency 
manipulation, foreign government subsidies, theft of intellectual 
property, and dumping of goods in our market at below-cost.
    While my congressional district has fallen victim to significant 
manufacturing job loss over the last 30-years, a handful of companies 
have defied the odds and still remain. I am convinced that many of 
these companies have chosen to stay in Upstate New York, in large part, 
because of their loyalty to the community. But how long can we depend 
on loyalty? At the end of the day businesses are in the business of 
selling a product and making a profit.
    Many will argue that previous trade agreements like NAFTA are the 
cause of our economic woes, and that may be true, but that ship has 
sailed--that time has passed. Our domestic manufacturing sector faces a 
new threat--and that threat is China. Without substantive action we 
face the possibility of losing thousands of more fair-wage 
manufacturing jobs. For example, in my district alone, the 580 jobs at 
Revere Copper, the 350 jobs at Nucor Steel, the 360 jobs at Shape Metal 
Alloys and the hundreds of jobs at Special Metals, to name only a 
handful--are all in jeopardy if we do not address unfair Chinese trade 
practices.
    I believe our Nation's trade laws are the last line of defense for 
U.S. companies and workers competing against unfair foreign trade 
practices. These laws are based on principles that the international 
community has long agreed on. If we do not enforce them vigorously, we 
will be sending the world a signal that the rules do not matter, and 
that they can violate them at will, without repercussions.
    In light of increasing unfair trade from China and other foreign 
competitors--its evident--now more than ever--that our laws must be 
updated and strengthened.
    There are a number of thoughtful and important legislative 
proposals from both the House and the Senate which seek to address 
unfair trade practices.
    Based on meetings and conversations I've had with businesses in my 
district--it's become overwhelming clear to me that we need to 
strengthen our trade laws to ensure predictably when industries have 
been injured and seek a remedy. Unfortunately, predictability has been 
non-existent under the current Administration.
    This Administration has used its discretion in all four special 
safeguard cases to deny any relief, even when the U.S. International 
Trade Commission determined that surging Chinese imports had caused 
significant market disruptions. Furthermore, over the past 13-years, 
the Treasury Department has used its discretion 25 consecutive times to 
avoid citing a single country for currency manipulation, often taking 
cover behind ``technical'' excuses.
    While I am realistic that there is no silver bullet solution to 
resolve these issues, one piece of legislation stands above the rest 
and ensures the predictability our domestic manufacturers deserve. The 
Currency Reform for Fair Trade Act, introduced by Mr. Ryan of Ohio and 
Mr. Hunter of California. As I'm sure each member of this Committee 
knows, the Ryan-Hunter bill would remove political discretion by apply 
countervailing laws to non-market economies like China, make an 
undervalued currency a factor in determining countervailing duties, and 
require the Treasury Department to identify fundamentally misaligned 
currencies.
    I agree that the Ryan-Hunter bill on its own will not solve the 
problem, but I would urge this Committee, as it moves forward, to 
include Ryan-Hunter language in legislation that makes its way through 
the process.
    In addition to strong trade remedy laws, our trade policy must 
underscore the tenet of reciprocity, which has been a fundamental 
principle in U.S. trade policy beginning with the Reciprocity Act of 
1815 and formed the basis of our global trading system. Reciprocity is 
a very simple concept reminiscent of the golden rule--you eliminate 
barriers to our goods and services, and we'll eliminate barriers to 
yours. When countries do not honor this rule and seek to gain unfair 
advantage, the benefits of the trade system are undermined. As one of 
the most open economies in the world, we must insist that our openness 
is reciprocated by our trade partners.
    Mr. Chairman and Members of the Committee, vigorous enforcement and 
strengthening of trade laws and agreements, coupled with reciprocal 
treatment by our foreign partners, is critical to building public 
support for expanding international trade.
    Together, we can level the playing field for our domestic 
manufacturers; we can restore faith in the world trade system; we can 
defend the integrity of U.S. trade laws and agreements; and most 
importantly, we can deliver the fairness in international trade that 
our citizens have a right to expect.
    The task before you is monumental, but under the leadership of 
Chairmen Rangel and Levin, I am confident you can address unfair trade 
practices in a way that maintains our international relationships while 
at the same time bolstering our Nation's manufacturing sector.
    I appreciate the opportunity to appear today and testify before 
this Committee.
    Thank you.

                                 

    Chairman LEVIN. Mr. Stupak, welcome.

STATEMENT OF THE HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF MICHIGAN

    Mr. STUPAK. Thank you, Mr. Chairman, and Members of the 
Subcommittee, thank you for having me here today. I ask 
unanimous consent that my full statement be made part of the 
record.
    Chairman LEVIN. No objection.
    Mr. STUPAK. I would like to comment just on a couple of 
statements that have been made and expand in an area of food 
safety that we don't pay enough attention to.
    Mr. STUPAK. Mr. Chairman, you and Senator Stabenow and Mr. 
Knollenberg have outlined the plight we face in Michigan with 
the loss of our manufacturing jobs because of unfair trade 
practices from China in particular. But let me elaborate a 
little more on something Mr. Hunter said about the arsenal of 
democracy and the need for specialty steel, that we had really 
only one company that could make it until the main ingredients 
they needed was not made available to our country.
    Back when we were fighting for the steel industry to 
survive, we asked the Department of Congress to look at the 
steel industry, and is it not one of those critical industries 
we need to maintain our security in this country. After the 
Department of Commerce did their investigation, they said, no, 
we don't need a U.S. steel market because we can always import 
our steel. They were wrong then, and they remain wrong. I think 
we have to look at, as Mr. Hunter said, our steel industry as 
part of our National security issues.
    Currency manipulation, I know the Chairman is familiar with 
the NewPage Corporation, the papermill up in my district that 
does high--highly gloss paper for all the trade sanctions 
against, or sought trade sanctions against China for illegal 
dumping. They talked a lot about currency manipulation. While 
they won that case recently, and in May they issued a ruling 
saying, yes, China did illegally dump, and they temporarily put 
a tariff on, they failed to address--the ITC and others failed 
to address the currency manipulation which was part of that 
petition. It was just completely ignored. So, currency 
manipulation we have to really look at closely with China.
    I want to highlight the ongoing investigation my Committee, 
Oversight and Investigation, is doing on the Energy and 
Commerce Committee on food safety. Mr. Davis probably said it 
best: There is nothing wrong with trade as long as there is 
trust in rules. Today we learn that more toys are being 
recalled from China because they are coated with lead paint, 
and that was just news here this morning.
    If you take a look at it, on April 24 we had our first 
hearing on food safety in response to melamine. Then we had 
another hearing on July 17, approximately 80 days. In that 80 
days we have had 39 new or revised import food safety alerts, 
import food safety alerts, these are import alerts now, with 
the instruction, detention without physical examination. So, 
you would think the food being imported into our country is 
being detained. It is not. Detained without physical 
examination means the importer finds a private lab to test the 
food and the concerns that we may have in this country, and the 
private lab usually gives the importer the results they want. 
It is then cleared, and it is allowed in our mainstream market, 
and later it is probably tested, hopefully, by FDA or somebody.
    Our Subcommittee shows that private laboratory testing, 
because there are no standards, they are not certified by 
anybody, is basically a sham. So, we have in 80 days 39 import 
food alerts; that is 1 every 2 days. We don't detain the food 
that is coming in this country from other countries, especially 
China, and they have a private lab contract out, and they say 
the food is safe, and they are into our mainstream commerce, 
and by the time we realize it is a problem, it is too late.
    You know, we take a look at the FDA in response to this. 
What we found, especially the seafood that comes from the Far 
East, and China in particular, treated with carbon monoxide, 
they should go through the Port of San Francisco, which are a 
leading FDA lab. But they are smart. They figure out that they 
will be inspected there, so they send the food instead to Las 
Vegas, the seafood, and then it is shipped back, Again treated 
with carbon monoxide. It looks fresh, it looks wholesome, when, 
in fact, 20 percent of the seafood was rotted. It was already 
rotten by the time it ever got to grocery stores. So, they find 
ways to get around it.
    Look at our food safety, and I only bring up the terrorist 
concerns about our food, but the food safety with imports is 
critically important. If you want to worry about terrorism, or 
you just want to worry about Americans dying every year from 
contaminated food, we must put forth standards in rules, as Mr. 
Davis said. Why can't we insist upon food coming in this 
country, it is developed, handled, grown, inspected, processed 
under the same standards we have in this country? Why do we 
allow them to bring into 360 some ports in this country when we 
have 90 FDA inspectors? Why don't we use inspection fees to 
develop a system so you have the resources?
    Subpoena power. When we had the melamine problem, we 
couldn't get into China, nor could we get any records because 
there is not subpoena power. Last but not least, the FDA 
doesn't even have any recall. When they say we are recalling 
food, like they are doing today in Manitowoc, Wisconsin, on 
some beans, that had no recall. It is the company that has to 
voluntarily do it. The FDA doesn't have any power to recall. 
They do not have subpoena power.
    There is so many things we should do, especially in the 
import area, with food and food safety, especially since more 
and more of our food is coming from China, and every 5 years 
our food imports double in this country.
    With that, Mr. Chairman, my time is up. I look forward to 
the rest of the time. Thank you.
    Chairman LEVIN. Thank you very much, Mr. Stupak.
    [The prepared statement of Mr. Stupak follows:]
                Statement of The Honorable Bart Stupak,
         Representative in Congress from the State of Michigan
    Thank you Chairman Levin and Ranking Member Herger for allowing me 
to testify before the Subcommittee today to the growing concerns 
surrounding China's currency manipulation and food safety issues.
    The growth of China's economy and its trade practices are some of 
the most significant challenges facing the United States in the 21st 
Century, especially in areas with a large manufacturing base, such as 
Michigan. In 2006, the United States had a $232.6 billion trade deficit 
with China. This is the largest trade deficit in American history.
    China's unfair trade practice of undervaluing its currency has 
helped create this imbalance and has put U.S. workers and manufacturers 
at a competitive disadvantage. In 2004, the $162 billion trade deficit 
with China represented roughly 1.8 million payroll jobs. For my 
district and the entire State of Michigan this has had a dramatic 
effect on jobs. Since 2000, unemployment has risen from 3.7 percent to 
7.2 percent in Michigan. During this same time frame, over 250,000 
people in Michigan lost jobs in manufacturing industries.
    While estimates vary, the Yuan is said to be undervalued by between 
20 to 40 percent relative to the U.S. dollar. This means a Chinese 
product will cost 40 percent less solely because of currency 
misalignment.
    Despite adopting some minor reforms in 2005, the Chinese Yuan has 
only increased about three percent in relation to the U.S. dollar. The 
Chinese government continues to protect the Yuan from the free-floating 
market and is in violation of the currency manipulation provisions 
within the World Trade Organization's General Agreement on Tariffs and 
Trade.
    It is well past time that America sends a strong message to China. 
Unfortunately, the Bush Administration has failed to engage China on 
this matter. The NewPage Corporation, a paper company which operates a 
high end coated paper mill in Escanaba, MI, has experienced first hand 
the Department of Commerce's unwillingness to address currency 
manipulation. In a countervailing duty and dumping case brought against 
China, Korea, and Indonesia, NewPage included currency manipulation 
within its petition. However, the Department of Commerce chose not to 
address or even investigate these charges.
    To help America's workers, farmers, businesses, and to sustain 
America's long-term economic security, Congress must engage in a full 
debate on how to take decisive action to bring about fair trade with 
China. The Currency Reform for Fair Trade Act is a step in the right 
direction of leveling the playing field with China and I urge the full 
Committee to take action on this legislation as soon as possible.
    I also want to highlight an ongoing investigation on the safety of 
the America's food supply in my Committee the Oversight and 
Investigations Subcommittee of the Energy and Commerce Committee. 
During this investigation, my Subcommittee has extensively examined the 
safety of food imports and other products coming from China.
    Our investigation began in March when it was discovered that wheat 
gluten contaminated with melamine from China was the source of the pet 
food contamination. This episode highlighted the deficiencies in the 
U.S. Food and Drug Administration's (FDA) system and showed that FDA's 
system is insufficient to protect the American people from unsafe and 
dangerous food.
    One area that is deeply concerning is FDA's Import Alert Rules. The 
Import Alert that was issued on April 27, 2007, regarding vegetable 
proteins from China (wheat gluten, etc.) presumably stated that all 
Chinese vegetable proteins would be detained until tested by FDA. 
However, in Import Alerts, the instruction ``Detention Without Physical 
Examination'' does not mean that FDA actually detains the product. 
Instead, FDA allows delivery of the product to the importer. The 
importer then hires a private laboratory to test the product. Our 
Subcommittee investigation uncovered that many of the tests conducted 
by these private laboratories are incorrect. Further, it now appears 
that FDA intends to contract out testing of all food imports, even 
surveillance samples that may identify problems, to private, for profit 
laboratories that work for the importers.
    At a time when the volume of food imports doubles every five years 
and when the American public appears to be exposed to an increasing 
amount of unsafe, contaminated food, the FDA has proposed a drastic 
reorganization of its field staff. As part of this reorganization 
proposal, FDA plans to close seven of its 13 laboratories. If this plan 
is implemented, laboratories with unique capabilities to analyze 
dangerous, imported food will be lost. For example, the San Francisco 
District Laboratory, which is slated for closure, has expertise dealing 
with unsafe food imports, especially from the Far East. This laboratory 
has been a significant force in the prohibition of problematic imported 
seafood. The lab's effectiveness is so well-known that many 
unscrupulous importers of seafood are now sending their questionable 
products through Las Vegas, to avoid the scrutiny that the seafood 
would face in San Francisco.
    The Kansas City District Laboratory is also slated for closure. 
This laboratory, along with another FDA laboratory, was responsible for 
detecting the melamine contamination in wheat gluten. The Denver 
District Laboratory develops methods to detect animal drug residues in 
animal and seafood tissues and in products such as milk and honey. In 
the past 15 years, the Denver lab has developed methods for detecting 
over 30 drug residues in fish and shellfish. In fact, the Denver lab 
recently developed the method for detecting melamine in fish tissue. 
All of these important functions, and many others, will be lost if the 
FDA closes seven of its 13 field laboratories.
    Further, as part of its reorganization plan, FDA plans to 
consolidate its entry review function into six locations. This is among 
the most dangerous of the proposed changes. This consolidation would 
remove entry review from ports where inspectors and analysts have spent 
their careers identifying problematic products and bad actors. All 
decisions concerning import inspections will be removed from the field 
personnel who are closest to the problem. When FDA only inspects 1% of 
all imports, it makes no sense to have food safety decisions made in 
Washington, D.C.
    During the August recess, Chairman Dingell and I are sending 
investigators to China and India to determine the extent to which the 
Chinese are willing and able to control the quality of food exports to 
the United States.
    There is no question the FDA needs a continuing presence in China 
in both the food and drug areas and that this presence will require an 
increase in funding. This will be the focus of legislation being 
drafted by Chairman Dingell. The investigation I am conducting will 
continue until we can assure our constituents that the food supply of 
this country is safe.
    Thank you again Chairman Levin and Ranking Member Herger for 
holding today's hearing and for giving me the opportunity to testify.

                                 

    Chairman LEVIN. Mr. Braley, welcome. Glad to see you here.

    STATEMENT OF THE HON. BRUCE BRALEY, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF IOWA

    Mr. BRALEY. Thank you, Mr. Chairman, and thanks to all the 
Members of the Committee for allowing me the opportunity to 
testify here today. I would ask unanimous consent that my 
written statement be included as part of the record.
    Chairman LEVIN. It will be.
    Mr. BRALEY. Mr. Chairman, you represent an area that is 
known as the automotive capital of the world. I represent an 
area that is known as the tractor capital of the world; 
Waterloo, Iowa. Back in 1948, when the NBA was founded, there 
was a franchise in Waterloo called the Waterloo Hawks. One of 
the players on that team was someone you know, Johnny Orr, who 
used to coach at the University of Michigan and later at Iowa 
State. At that time there was an NBA franchise in Fort Wayne, 
Indiana, called the Fort Wayne Zollner Pistons.
    Chairman LEVIN. I have heard of them.
    Mr. BRALEY. Back in the 1948, in the postwar era, 
manufacturing was much different than it is in this country. 
The reason why the NBA changed, and the reason why there aren't 
franchises in Fort Wayne or Waterloo anymore is because the 
rules of the game changed. When China was admitted to the WTO, 
the rules were supposed to change for them in terms of how they 
conducted their trade policies.
    One of the things I would like to start with is this 
summary I put together showing the trade imbalance with China 
that was taken from the foreign trade statistics of the U.S. 
Census Bureau. Mr. Kind, I believe if you look at this summary, 
it pretty much tracks your history in Congress in terms of your 
tenure, and it shows how from 1997, our trade deficits 
skyrocketed from $49 billion to last year when it was $232 
billion. One of the things that happened as a result of this 
burgeoning trade imbalance is that the U.S.-China Economic and 
Security Review Commission was established to monitor that 
trade imbalance and report back to Congress.
    Some alarming things have happened in the last 3 years that 
have been noted by that Commission. On January 11 of 2005, they 
released a study that documented the negative impact of our 
U.S. trade deficit with China, and they noted in that report 
that 1.5 million jobs were lost to lower-wage Chinese 
competition between 1989 and 2003. During that time our trade 
deficit grew twenty fold.
    They also noted that the assumptions we built our trade 
relationship with China on have proven to be a house of cards. 
Last year during its annual report to Congress, the 2006 
report, the same Commission talked about the U.S.-China trade 
relationship and noted the problems, including currency 
manipulation, accounting integrity, dispute resolution problems 
and fair trade, and the need for criminal penalties for 
intellectual property rights violations.
    More importantly, in chapter 4 there was a case study of 
the automotive industry that illustrated the challenges to U.S. 
manufacturing and the U.S. defense industrial base. We 
recommended that all U.S. Department of Defense be required to 
trace the supply chains of components of critical weapons 
systems in its recommendations to Congress.
    Just this year on June 1 in its 2007 report to Congress, 
the U.S.-China Economic and Security Review Commission noted 
that five of the eight factors that are major drivers of 
China's competitive advantage are considered unfair trading 
practices, including undervalued currency; counterfeiting and 
piracy; export industry subsidies; and lax health, safety and 
environmental regulations. That clearly violates China's WTO 
commitments regarding workers' rights, market access, currency 
manipulation, subsidies and protection of U.S. intellectual 
property rights.
    The reason I am here is to voice my strong support for the 
two bills we have been talking about, H.R. 1229, which I was 
proud to cosponsor, and H.R. 2942, which I was also proud to 
cosponsor. It is time for us to level the playing field and 
bring China into compliance with its international trading 
obligations, and require our Administration officials to do 
their job to provide a level playing field by insisting upon 
enforcement of the rules of the game.
    Thank you for allowing me to be here.
    Chairman LEVIN. Thank you very much.
    [The prepared statement of Mr. Braley follows:]
                Statement of The Honorable Bruce Braley,
           Representative in Congress from the State of Iowa
    Chairman Levin and Members of the Committee, thank you for the 
opportunity to testify today at this important hearing on trade issues 
related to China. As you well know, China has very quickly become a 
dominant player in the global trade community, and I am very glad that 
you are holding this hearing today to address this issue that is so 
critical to American industries and workers.
    I am troubled by our growing trade deficit with China, and by the 
detrimental effect this growing deficit has had on American jobs. We 
cannot afford to take a laissez-faire approach regarding China and 
trade, because the fact is that the Chinese government has taken a very 
activist approach to making China a major global economic force by 
illegally subsidizing their producers, by illegally dumping goods into 
the U.S. market, and by significantly undervaluing their currency. How 
we as a country respond to China's growing dominance will have dramatic 
effects on our economy as a whole, and on literally millions of 
American businesses, workers, and families.
    American workers and farmers are the best in the world, but we 
cannot expect them to compete with Chinese producers benefiting from 
unfair trade practices. We in the Congress need to be sure that we 
enact the most effective laws we can to defend against unfair trade 
from China and all of our trading partners, and to ensure that our 
workers can compete on a level playing field. The United States has 
already lost far too many quality jobs to flawed trade policies, and we 
owe this action to American workers and their families.
    Of course, the Congress is only one part of the equation that 
equals fair trade and the preservation of good jobs for American 
workers. The laws that we pass in this body are meaningless if the 
Administration is unwilling to enforce them. However, if Congress 
enacts effective trade remedies and if the Executive Branch enforces 
those laws strongly, our manufacturing and agricultural industries will 
have a far better opportunity to thrive.
    I am pleased that there have been a number of bills introduced in 
the 110th Congress that would strengthen our trade laws and ensure that 
the Executive Branch enforces them. In the limited time we have this 
morning, I cannot fully address each of these. I would, however, like 
to comment on a few measures that I believe should be adopted by your 
Committee and the full House.
    First, H.R. 1229, the ``Non-market Economy Trade Remedy Act of 
2007,'' introduced by two members of the Ways and Means Committee, Mr. 
Davis and Mr. English, would make several important changes to the 
trade laws as they relate to non-market economies, including China. I 
am proud to be a co-sponsor of this legislation, which would clarify 
that countervailing duty law can be applied against subsidies granted 
by such non-market economies. I understand that this Subcommittee had a 
hearing on this important legislation earlier this year and that John 
Comrie, the Director of Trade Policy and Communications at Ipsco 
Enterprises, a steel and steel pipe producer with significant 
operations in my state, testified in support of this legislation. Ipsco 
employs about 250 workers at its Camanche, Iowa pipe mill in the First 
District of Iowa, which I represent, and about 100 people who work in 
the Ipsco steel mill in Montpelier, Iowa also live in my District.
    The significant undervaluation of China's currency also poses a 
unique and complex problem for U.S. companies and workers. I am 
concerned that while the Administration has criticized China's currency 
misalignment, it has not taken the necessary action to provide American 
industry with relief, and that while international organizations like 
the International Monetary Fund and the G-8 have acknowledged that 
exchange rate misalignment can cause instability in the international 
trading system, they also have not taken adequate action to correct 
these misalignments and imbalances.
    That is why I am proud to be a co-sponsor of H.R. 2942, the 
``Currency Reform for Fair Trade Act of 2007,'' introduced by Mr. Ryan 
and Mr. Hunter, who are also testifying here today. This bill would 
take significant and necessary steps to help ensure that American 
workers and industries get the relief they deserve from unfairly 
misaligned currencies. Particularly, the ability to apply 
countervailing duty law and anti-dumping law to imports that have 
unfairly benefited from a foreign government's intervention through 
currency undervaluation is an important tool for our domestic 
industries to have available to them. In addition, I am pleased that 
this bill includes important provisions which would require the 
Executive Branch to take action against countries which maintain 
fundamentally misaligned currencies, ensuring that these countries are 
held accountable for this unfair trade practice.
    I wish I could stay here for the remainder of the hearing, because 
I know that you will also be addressing other important and relevant 
legislation, but unfortunately I have to attend a mark-up in the 
Committee on Oversight and Government Reform at this time. Again, thank 
you for the opportunity to testify in front of you today, for your 
attention to these important bills, and for your leadership on this 
critical issue.

                                 

    Chairman LEVIN. Mr. Ryan.

 STATEMENT OF THE HON. TIM RYAN, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF OHIO

    Mr. RYAN. Mr. Chairman and Ranking Member Herger, thank you 
very much; Mr. Chairman, you especially for just being an 
absolute bulldog on this issue. As you have known, I have spent 
a significant amount of time and staff resources since I got to 
Congress to try to educate Members and the public on this issue 
and craft legislation that many believe will go a long way to 
leveling the playing field with our relationship in China.
    Let me begin by saying that I believe that free and fair 
trade relationships are critical to our Nation in today's 
global economy. The United States must continue to develop 
strong trade relationships to ensure that our industries can 
compete in the global marketplace and provide jobs and economic 
growth for our local communities. However, U.S. trade law must 
provide a level playing field, as Mr. Davis articulated quite 
well earlier, and must not unfairly cripple U.S. industries at 
the hands of foreign governments by their illegal practices.
    Currency exchange rates are an essential element of the 
global trade process, and significantly misaligned or 
artificially undervalued currencies have a devastating impact 
on domestic manufacturing and create an unacceptable trade 
relationship. There is ample evidence from both conservative 
and liberal think tanks and scholars that various foreign 
governments undertake practices that result in their 
currencies' artificial undervaluation relative to the U.S. 
dollar, and the United States cannot allow our trading partners 
to continue this illegal practice without providing remedies 
for injured industries.
    As you know, and as Representative Hunter stated earlier, 
we recently introduced the Currency Reform for Fair Trade Act 
of 2007. This bill is an updated version of the Fair Currency 
Act of 2007, which had 112 bipartisan cosponsors. Mr. Hunter 
and I believe this new bill, H.R. 2942, is a stronger piece of 
legislation that provides greater, necessary relief for U.S. 
industries being harmed by unfair currency practices. As such, 
we believe this legislation will appeal to an even greater 
number of Members.
    Let me quickly review some of the features of our bill. The 
bill applies countervailing duty law to currency undervaluation 
and defines ``fundamental and actionable misalignment'' as an 
undervaluation that exceeds 5 percent on an average for an 18-
month period prior to the date of determination. This bill 
continues to require the use of public data to compute the 
extent of currency undervaluation, but adds a specific approach 
for determining the level of undervaluation based on the simple 
average of three standard economic methodologies.
    This bill also continues the application of the antidumping 
law to currency undervaluation by amending the current 
antidumping law requiring the Commerce Department to adjust the 
price of an import from a country whose currency is found to be 
fundamentally misaligned in order to achieve a fair comparison.
    This bill also applies countervailing duty law to nonmarket 
economy countries, Mr. Davis also mentioned that, while 
describing methodologies to construct a nonmarket economy 
price. This bill holds countries accountable if they maintain a 
misaligned currency by requiring certain monetary and trade 
steps by the Secretary of Treasury, including commencement of 
dispute settlement at the WTO and consideration of remedial 
intervention when a country fails to eliminate its currency 
misalignment.
    Finally, this bill creates an Advisory Committee on 
International Exchange Rate Policy to advise the Secretary of 
Treasury and the President on international exchange rates and 
financial policies. This panel is to be made up of 
nongovernment appointees appointed by the House, Senate and 
President.
    It is essential, Mr. Chairman, that this Congress pass 
strong legislation to ensure action is taken on the part of 
U.S. industries, and that each of these elements of our 
legislation is critical to ensuring a fair trade environment.
    As you know, the Senate has also been recently engaged in 
the issue of currency misalignment. Yesterday S. 1677 was 
marked up and passed out of the Senate Banking Committee. Last 
week S. 1607 was marked up and passed out of the Senate Finance 
Committee. I will take just a moment to point out some of the 
key differences between our bill and S. 1607, the Bachus-
Grassley-Schumer-Graham bill.
    First of all, while the Senate bill 1607 addresses 
antidumping laws in relation to currency, it does not allow for 
the application of countervailing duty laws to undervalued 
currency. This will not provide sufficient relief for our 
industries.
    Second, this bill provides far too much flexibility to the 
Treasury Department in determining when a petition can be filed 
under the antidumping statute at the Commerce Department and 
the U.S. International Trade Commission, only allowing 
petitioners to seek antidumping relief after Treasury has made 
a determination of misalignment and designated the currency for 
priority action. This approach makes Treasury a strong 
gatekeeper and provides far too great a barrier to U.S. 
industries in need of relief. Under our bill U.S. industries 
can directly petition the Commerce Department and the U.S. 
International Trade Commission under existing trade law without 
waiting for Treasury determinations. Blocking this ability to 
directly petition their government on currency matters is a 
step backward in the process and is not acceptable.
    Finally, the Senate bill is too vague in its definition of 
fundamental misalignment. As I previously stated, our bill 
requires the use of standard economic methodologies to 
determine whether a specific level of misalignment has occurred 
for a specific period of time. The Senate bill 1607 defines 
misalignment as significant and sustained without providing any 
guidance as to what constitutes significant or sustained. 
Again, this provides far too much leeway and will lead to 
continued inaction. We don't have the time to get bogged down 
with weak legislation. Small- and medium-sized American 
manufacturers need our help now.
    While I applaud the efforts of this Committee and of the 
Senate to address the critical issue of currency misalignment, 
I believe that any action taken must be strong and end this 
devastating practice that threatens to destroy our industrial 
base. Passage of a weak bill will only lead to many more years 
of inaction by the Administration, loss of jobs, loss of 
critical U.S. manufacturing capability and the continued demise 
of our defense industrial base.
    Mr. Chairman, I can't thank you enough for having this 
hearing and the support. Obviously we can see, not only of the 
Ryan-Hunter bill, which Mr. Hunter calls the Hunter-Ryan bill 
in South Carolina and Nevada, New Hampshire and Iowa, but this 
is something that has bipartisan support, people who support 
trade agreements, people who do not support trade agreements, 
Democrats, Republicans from all over the country. I appreciate 
you giving us such an opportunity to look at this and look 
forward to working with you and the Committee in the future. 
Thank you.
    [The prepared statement of Mr. Ryan follows:]
                  Statement of The Honorable Tim Ryan,
           Representative in Congress from the State of Ohio

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    Chairman LEVIN. Well, we appreciate your coming in, all of 
you, and joining us. We will now go to the second panel; 
Secretary Spooner, Sobel, USTR Assistant Rep. Brinza and the 
Assistant Commissioner Baldwin. Thank you again to all of our 
colleagues for coming.
    Welcome. We very much welcome all of you. I am not--I 
looked twice last night at the list to try to figure out the 
protocol, and I must confess I wasn't quite sure. So, if you 
don't mind, we will go in the order that you are seated; is 
that okay? If you could, if possible, limit your presentations 
to 5 minutes to give us time. Your full statements will be in 
the record. Just proceed as you want to. We have looked forward 
to this back-and-forth. We would like to have it as fully open 
as possible. So, let us go. We will start, I guess, with 
Secretary Spooner, and then we will just go down the row.

 STATEMENT OF DAVID M. SPOONER, ASSISTANT SECRETARY FOR IMPORT 
ADMINISTRATION, INTERNATIONAL TRADE ADMINISTRATION, DEPARTMENT 
                          OF COMMERCE

    Mr. SPOONER. Thank you, Chairman Levin, and Ranking Member 
Herger and Members of the Subcommittee, for inviting me to 
appear before you today to discuss the Administration's views 
on the legislative proposals relating to trade with the 
People's Republic of China.
    Our trading relationship with China in general is a 
positive one with important benefits to the U.S. economy. 
However, at the same time we recognize that U.S. companies face 
a number of challenges as they try to compete in the China 
market, as well as with Chinese companies in the U.S. and with 
other markets. These challenges include market barriers, 
intellectual property issues and unfair trade practices.
    The Administration is strongly committed to free trade and 
to securing the benefits of open markets around the world, 
which is why we are firmly committed to ensuring that such 
trade be conducted according to international norms of fair 
trade, and be as free as possible from government intervention 
and distortion. We understand and support the proposition that 
maintaining public support for open trade means preserving the 
ability of the United States to enforce rigorously our trade 
remedy laws.
    The U.S. clearly derives benefits from trading with China. 
It is our fastest-growing market, and now our fourth largest 
overall export market. U.S. exports to China totaled $55 
billion in 2006, up 32 percent from the previous year. To put 
this in perspective, U.S. exports to China were greater than 
U.S. exports to India, Brazil and France combined. According to 
U.S. surveys, U.S. companies in China are generally successful 
and report solid sales in the China market, and our companies 
and consumers derive benefits from imports from China as well.
    The benefits derived by the United States trade with China 
are bolstered by a framework that requires China to abide by 
its international obligations. For the last 35 years, it has 
been the policy of the United States to engage China as it 
moves toward market economics. This policy culminated with 
China's accession to the WTO in 2001, so that China now has 
both rights and responsibilities that come with Membership in 
the international trading system.
    But as China's economy has evolved over the years, so has 
the range of tools available to make sure that China abides by 
these rights and responsibilities. Earlier this year Commerce 
preliminarily modified a 23-year-old government policy by 
applying the antisubsidy law to China. From 1984 until March of 
this year, Commerce had a practice of not applying the CVD law 
to the nonmarket economy countries, including China, and the 
antidumping law was a commonly used instrument to address 
unfair trade practices on the part of Chinese exporters and 
producers.
    In our countervailing duty investigation on glossy paper 
from China, Commerce preliminarily determined on March 30 that 
the current nature of China's economy does not create the 
obstacles to applying the antisubsidy law that were present in 
the mid-eighties in the Soviet-style economies at issue 20 
years ago. China of 2007 is not the Soviet bloc 1984. There is 
no legal bar to Commerce's application of the CVD law to 
nonmarket economies, including China. In the case of China, we 
will continue to investigate properly alleged subsidy 
allegations and will countervail subsidies when there is 
sufficient evidence that warrants application of the law.
    Indeed, I was just in China 2 weeks ago for an on-the-
ground investigation of subsidies to China's paper industry. 
Additionally, my agency is now investigating subsidies to 
several industries, including steel and tires. Our CVD 
investigations are among the most transparent in the world, and 
all interested parties will have ample opportunity to provide 
comments for the record in each of these ongoing proceedings. 
We will make our final determination in the glossy paper case 
in October.
    Our preliminary decision to apply the countervailing duty 
law to China in no way reverses our decision, reaffirmed last 
August in the context of an antidumping investigation, to treat 
China as a nonmarket economy under our antidumping law.
    The Department of Commerce is committed to identifying and 
addressing trade-distortive and injurious subsidies in all 
countries, including China. It is a top priority for us. 
Commerce has always maintained, and we believe the courts have 
agreed with us, that we have the statutory authority to apply 
the CVD law to NME countries. However, if Congress would like 
to affirm Congress' authority, we would welcome the opportunity 
to work with you, Mr. Chairman, and with this Committee.
    I should note that because of the complexity of this issue, 
it is important for the language of any bill to be crafted with 
appropriate precision not only to ensure consistency with our 
international obligations, but also to avoid unintended 
consequences for existing provisions of U.S. CVD and 
antidumping law.
    Beyond that issue I must make clear that the Department of 
Commerce is deeply concerned that the other legislative 
proposals that have been advanced to date raise serious issues 
under the international trade remedy rules and could invite WTO 
sanction retaliation against U.S. goods and services, as well 
as foreign mirror legislation, and trigger a global cycle of 
protectionist legislation.
    Before concluding, please allow me to comment on one other 
important issue that is under review in today's hearing, the 
question of whether dump sales should be offset by nondump 
sales in an antidumping analysis; zeroing. It is an extremely 
important issue, and the Administration finds the WTO appellate 
body's rulings on zeroing to be very troubling. However, we 
place significant importance on respecting the dispute 
settlement system and addressing these findings whether we 
agree with them or not through the appropriate mechanisms. We 
are committed to consulting closely with Congress as to the 
appropriate way to move forward in response to the appellate 
body's findings on zeroing. We will continue to use the rules 
negotiations in the WTO as a form to educate other WTO Members 
on the troubling implications of the appellate body's findings, 
particularly with respect to their own antidumping systems. We 
firmly believe that the zeroing issue is one that must be 
addressed through negotiation, and we will continue to work 
closely with USTR on such efforts.
    Thank you, Mr. Chairman, for giving me this opportunity to 
testify, and I am happy to take any questions.
    Chairman LEVIN. Thank you.
    [The prepared statement of Mr. Spooner follows:]
              Statement of The Honorable David M. Spooner,
             Assistant Secretary for Import Administration,
       International Trade Administration, Department of Commerce

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    Chairman LEVIN. Secretary Sobel.

    STATEMENT OF MARK SOBEL, DEPUTY ASSISTANT SECRETARY FOR 
INTERNATIONAL MONETARY AND FINANCIAL POLICY, U.S. DEPARTMENT OF 
                          THE TREASURY

    Mr. SOBEL. Thank you, Chairman Levin, Representative Herger 
and Members of the Subcommittee.
    Congress is currently considering proposed legislation to 
counter perceived unfair currency practices against the 
background of legitimate concerns over Chinese exchange rate 
management. Let me share with you our perspectives.
    Secretary Paulson is engaging China forcefully through the 
Strategic Economic Dialogue. He returned last night from China 
where he saw President Hu and China's financial leaders. He 
conveyed a strong message about the need for more vigorous 
action to correct the undervaluation of the RMB, lift its 
value, and achieve far greater currency flexibility.
    Our discussions with China and the SED focus on the 
importance of China rebalancing its economy away from excess 
saving toward more consumption. RMB undervaluation encourages 
Chinese production of exports at the expense of domestic goods. 
The Chinese exchange rate regime is creating risks for China, 
including that of a renewed boom-bust cycle, which would harm 
not only China, but the world economy.
    We are not satisfied with the pace of change in China. 
There has been important progress, however, including nearly 10 
percent RMB appreciation in the last 2 years. We strongly share 
Congress' frustrations with the slow pace of Chinese reform. 
However, direct, robust engagement with China is the best means 
of achieving progress. We do not believe that legislation will 
strengthen our hand in promoting faster reform of the Chinese 
economy. Indeed, legislation could be counterproductive and 
lead to unintended consequences.
    While strong bilateral engagement is a vital part of U.S. 
financial diplomacy, experience shows the best way to 
accomplish our objectives is through multilateralism. That is 
why we have worked to enhance global understanding of the 
adverse impact of China's currency's practices and to build a 
multilateral consensus to persuade China to alter its exchange 
rate regime. We have done so with the G-7 and many other 
countries.
    The United States has also worked hard to strengthen the 
IMF's focus on currency surveillance. In June the IMF 
modernized its rules for carrying out this responsibility. 
Under the new decision, the IMF will scrutinize much harder our 
country's currency policies and their impact on the world 
economy. Critically the new decision sends a strong message 
that the IMF has put exchange rate surveillance back at the 
core of its duties.
    If the United States adopts currency legislation that is 
perceived as unilateralist, it could dampen investor's 
confidence in the openness of our economy and our financial 
system. We also must be mindful of the risk that we will create 
a precedent that others might use, including against the United 
States.
    Many of the proposals under consideration mandate 
determination of whether currencies are in fundamental 
misalignment as a basis for remedial measures. Fundamental 
misalignment is a useful concept. The IMF included it as a 
foundation of its new currency surveillance decision. 
Economists rely on statistical models to assess currency 
misalignment. There are many types of models, and each depends 
on many assumptions. Depending on the assumptions, a wide range 
of results is yielded. One study on China found that estimates 
of RMB undervaluation ranged from 0 to 50 percent.
    It is difficult for models to fully describe all the 
features of a modern economy relevant to exchange rate 
determination. For example, most models do not take into 
account the world's enormous private financial markets and 
their impact on currency evaluations. This is a serious 
omission that can result in currencies whose exchange rates are 
wholly market-determined being assessed as fundamentally 
misaligned. Most approaches focus on multilateral real exchange 
rates.
    Economists view bilateral equilibrium agreement exchange 
rates as a less robust concept. Practically speaking, computing 
a bilateral equilibrium exchange rates implies one knows the 
appropriate amounts of bilateral trade, investment and other 
financial activity with another country. On balance, 
equilibrium exchange rate analysis generates valuable 
information, but there is no precise or reliable method for 
estimating a currency's proper value. Using the concept of 
fundamental misalignment to drive bilateral exchange rate 
calculations for the purpose of imposing trade remedies goes 
well beyond the IMF's approach to fundamental misalignment.
    Some of the bills include provisions requiring the Treasury 
to oppose any change in governance at the international 
financial institutions if a country with a currency designated 
for action were to receive a higher voting share. Such 
provisions, we feel, are detrimental to U.S. interests in 
reforming the IMF, whose governing structure is out of touch 
with today's world and the growing role of emerging market 
economies. Such provisions would prevent many emerging markets 
from obtaining a higher quota share in the IMF, while having 
little influence on Chinese behavior.
    Other proposals to consider remedial intervention in the 
foreign exchange market are ill-advised, in our view. It would 
be enormously difficult to intervene in a currency that is not 
traded internationally, as is the case of the RMB. It would 
detract from our efforts to work with China to correct the 
RMB's undervaluation.
    Thank you, Mr. Chairman.
    Chairman LEVIN. Thank you very much.
    [The prepared statement of Mr. Sobel follows:]
                 Statement of The Honorable Mark Sobel,
       Deputy Assistant Secretary for International Monetary and
             Financial Policy, U.S. Department of Treasury


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    Chairman LEVIN. Next, Assistant U.S. Trade Rep. Daniel 
Brinza. Welcome.

STATEMENT OF DANIEL BRINZA, ASSISTANT U.S. TRADE REPRESENTATIVE 
   FOR MONITORING AND ENFORCEMENT, OFFICE OF THE U.S. TRADE 
                         REPRESENTATIVE

    Mr. BRINZA. Thank you, Mr. Chairman, and Ranking Member 
Herger and Members of the Subcommittee on Trade. I am pleased 
to participate in today's hearing. I understand that today's 
hearing is focused principally on China currency and trade 
issues, including possible legislation relating to those 
issues.
    Within the Administration, the Treasury Department is 
charged with responsibility for currency and exchange rate 
matters, while the Office of the U.S. Trade Representative is 
responsible for developing and coordinating U.S. international 
trade and investment policy. Our view aims at increasing 
exports; securing a level playing field for American workers, 
farmers and businesses; and ensuring fair treatment for U.S. 
investment abroad. We seek to resolve trade problems using a 
wide variety of tools, including bilateral discussions, 
negotiations and formal dispute settlement proceedings.
    Our work depends at its core on the commitment of the 
United States Government, including the Congress, to uphold our 
international trade agreements. Accordingly, one key barometer 
that we apply in considering all potential trade legislation is 
World Trade Organization consistency. It is important to avoid 
enactment of WTO inconsistent legislation. Not only would it 
likely be challenged in WTO dispute settlement, potentially 
resulting in the imposition of sanctions or other measures 
against U.S. exports, service providers or intellectual 
property, it would undermine U.S. credibility as we seek to 
promote compliance by our trading partners with their 
international trade obligations. For example, legislation has 
been introduced in this Congress in response to China's 
currency practices which appears to raise serious concerns 
under international trade remedies rules and could invite WTO 
sanction retaliation against U.S. goods and services as well as 
foreign mirror legislation and trigger a global cycle of 
protectionist legislation.
    Taken together, the Administration's engagement in the 
international economic realm uses the best tools available to 
us to serve the American people's interest in building strong, 
mutually beneficial economic relations with our global trading 
partners, including China.
    To provide a more concrete perspective on our work, I will 
give you a brief overview of USTR's recent engagement with 
China, touching on the mechanisms USTR uses to address key 
trade concerns. Since succeeding to the WTO 5 years ago, China 
has taken significant steps in an effort to bring its trading 
system into compliance with WTO rules. U.S. businesses, 
workers, farmers, service providers and consumers have 
benefited significantly from these steps and continue to do so 
as U.S.-China trade grows. Indeed, last year U.S. exports to 
China climbed by 32 percent, while China's exports to the 
United States increased by 18 percent.
    China today has become our fourth largest export market and 
the fastest-growing major export market for the United States 
in the world. It is helping to support thousands of American 
jobs today and will support even more in the future. Despite 
this progress, China's record in implementing its WTO 
obligations is mixed. In our engagement with China, we follow a 
dual-track approach; a bilateral dialogue together with a full 
willingness to use WTO's dispute settlement where appropriate.
    Considering bilateral dialogues, the United States has 
achieved some important successes. For example, China made 
several commitments related to IPR protection and enforcement, 
to eliminate duplicative testing and certification requirements 
applicable to imported medical devices, and to make adjustments 
to its registered capital requirements for telecommunication 
service providers. China also reaffirmed past commitments to 
technology neutrality for 3G telecommunication standards, and 
to ensure that new rules in the postal area would not 
negatively affect foreign express couriers.
    To date we have turned to formal WTO dispute settlement in 
five instances. With respect to semiconductors, it has filed a 
WTO dispute against China challenging value-added tax rebates 
that discriminate against imported semiconductors. As a result, 
the United States and China resolved the matter, ensuring fair 
access for manufacturers and workers to a market worth over $2 
billion.
    Auto parts, the U.S. acted together with the European 
Communities and Canada, launched a WTO dispute settlement case 
challenging China rules that provide for prohibited local 
content requirements in the auto sector through discriminatory 
charges on imported auto parts. This case is now before a WTO 
panel with a decision expected in January 2008.
    Industrial subsidies. The U.S., later joined by Mexico, 
filed a WTO challenge against several Chinese subsidy programs 
that appear to be prohibited under WTO rules, either as export 
or import substitution subsidies. We have now asked the WTO to 
establish an arbitral panel to hear our case.
    Intellectual property and market access. The U.S. initiated 
WTO's free settlement proceedings on Chinese market access 
restrictions in copyright-intensive industries, books, 
newspapers and periodicals, and audio and video products. We 
have held initial consultations, and additional consultations 
are under way.
    Intellectual property protection. The U.S. has launched a 
WTO challenge to various deficiencies in China's legal regime 
for protecting and enforcing copyrights and trademarks that 
affect a wide range of products. Consultations have recently 
taken place.
    One area we have not yet reached a satisfactory conclusion 
is in the area of beef trade. Working closely with the 
Department of Agriculture, we have been in contact with China 
to seek a full reopening of the beef market consistent with 
international standards.
    In summary, USTR is committed to ensuring that we are using 
the most effective tools at our disposal to pursue an open and 
fair trade relationship with China. This effort ties into 
broader Administration engagement on international economic 
issues, including work by Treasury and Commerce and with 
Members of Congress to achieve a more flexible market-based 
exchange rate for China's currency and a level playing field 
for American businesses, workers and farmers.
    Thank you again for the opportunity to testify. I will be 
happy to take any questions.
    Chairman LEVIN. Thank you very much.
    [The prepared statement of Mr. Brinza follows:]
               Statement of The Honorable Daniel Brinza,
         Assistant U.S. Trade Representative for Monitoring and
          Enforcement, Office of the U.S. Trade Representative

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    Chairman LEVIN. At last Commissioner Baldwin. We look 
forward to your testimony.

STATEMENT OF DANIEL BALDWIN, ASSISTANT COMMISSIONER, OFFICE OF 
   INTERNATIONAL TRADE, U.S. CUSTOMS AND BORDER PROTECTION, 
                DEPARTMENT OF HOMELAND SECURITY

    Mr. BALDWIN. Thank you, Mr. Chairman, Members of the 
Subcommittee. I am pleased to appear before you today to 
discuss the actions we are taking at Customs and Border 
Protection to enforce our trade laws and ensure the safety of 
our imported food products.
    My name is Dan Baldwin. I am the Assistant Commissioner 
with our newly created Office of International Trade. My office 
holds the responsibility of formulating CBP's trade policy and 
enforcing U.S. import laws. As the value and complexity of our 
trade continues to grow, CBP recognizes the challenges we face 
to maintain a safe and secure food supply chain.
    Since 9/11, CBP's priority mission has been to secure the 
Nation's borders from terrorists and terrorist weapons while 
facilitating the flow of legitimate travel and trade. In 
support of this mission, CBP has designed strategies to manage 
the risk of agriculture and other trade products to ensure that 
no contamination and no harm comes to our Nation.
    As the guardian of our Nation's borders, CBP has broad 
authority to interdict food imports and other trade goods at 
the ports of entry. We frequently interact with various 
government agencies, including these here at the table, but 
also including Food Safety Inspection Service and FDA, on 
questions related to enforcement actions, as those agencies 
house subject matter experts on many trade policy and trade 
safety issues. Thus, CBP is able to rely on statutory authority 
of the Federal agencies with specific mandates to enforcing our 
trade laws and our food safety regulations to finalize our 
enforcement actions.
    As with our approach to antiterrorism, CBP has taken a 
multilayer approach to protect the safety of the American trade 
system. In my testimony today I would like to highlight three 
key aspects that CBP has focused on primarily in the food 
safety arena, as was mentioned at the earlier panel that food 
and import safety is taking on new importance, and CBP is at 
the forefront of that. First I would like to highlight CBP's 
national trade strategy; second, CBP targeting efforts; and 
finally, CBP personnel dedicated to the fight. After briefly 
discussing these three topics, I can highlight some of our 
experiences with these operations.
    First, pursuant to our twin goals of fostering legitimate 
trade and travel while securing our borders, CBP has developed 
a national trade strategy to help our agency successfully 
fulfill our trade facilitation and trade enforcement mandate. 
Our national trade strategy is based on six priority trade 
initiatives. Agriculture is among them, but they also include 
textiles and wearing apparel enforcement, antidumping and 
countervailing duty enforcement, intellectual property rights 
enforcement, and revenue protection.
    Under the terms of our trade prioritization strategy, we 
focus our resources and efforts to address areas of key trade 
importance. Our goals are to detect and interdict agro and 
bioterrorism in the food safety arena and prevent the 
unintentional introduction of pests, diseases and unsafe 
agriculture and food products. This enables CBP to promote our 
Nation's economic security through enforcement of our 
regulatory trade laws.
    Second, CBP uses various targeting mechanisms to ensure the 
compliance and safety of food and agriculture products imported 
into the United States and thereby work to achieve CBP goals 
that I have just listed for you.
    CBP, in coordination with FSIS and FDA, utilizes the 
following mechanisms to ensure safety of the American food 
supply. Our Automated Targeting System is based on algorithims 
and rules of a flexible, constantly evolving targeting system 
that integrates enforcement and commercial databases. ATS is 
essential to CBP's ability to target high-risk cargo entering 
the United States based upon advanced manifest information.
    CBP also uses the Automated Manifest System, or AMS, which 
provides us with advanced cargo information to be used for 
targeting screening of all imported merchandise. We utilize 
this system to assure appropriate coordination with other 
regulatory agencies.
    The Automated Commercial System, or ACS, CBP's automated 
system of record for entry processing and cargo clearance, 
allows us to screen for additional food and agriculture risks 
as well as the vast majority of our trade issues. The majority 
of our trade-targeting criteria present in this system are 
intended to prevent the introduction of contamination, pests or 
diseases. Approximately 87 percent of our current criteria in 
ACS are agriculture-related.
    In addition to these systems, CBP maintains the National 
Targeting Center. The NTC is the state-of-the-art facility in 
which personnel from several separate government agencies are 
co-located to review advanced cargo information on all inbound 
shipments.
    In addition to sophisticated targeting systems and 
coordination between agencies, CBP maintains a diverse 
workforce that is specifically trained to detect and prevent 
imports that may be harmful to the American public.
    CBP personnel receive specific training on agro and 
bioterror incidents. We currently have the ability to rapidly 
deploy more than 18,000 CBP officers, 2,000 agriculture 
specialists and 1,000 import specialists in response to a 
threat to our agriculture and food supply. Furthermore, CBP's 
Laboratory and Scientific Services (LSS) maintains eight 
separate laboratories around the country with a 24/7 technical 
reach-back center.
    With these resources CBP has responded to the increased 
need for focus on food safety particularly from China. Overall 
Chinese food imports represent about 1-1/2 percent of total 
imports from China by value. While they may seem small, this 
sector is experiencing recent significant growth. In 2006, 
Chinese food imports increased 25 percent just from the 
previous year, the second fastest growth rate compared to the 
top five Chinese trade sectors. In addition, 75 percent of the 
overall 1 million Chinese food producers are small operations. 
These two factors result in an increased risk to the food 
supply from China.
    Food defense and food safety concerns will only increase as 
world trade in food and agriculture and other trade issues 
continue to grow and diversify. CBP will continue to focus on 
the issue and partner with other Federal agencies to ensure the 
prevention of contaminated products from entering the United 
States.
    I thank the Chairman, the Ranking Member and other Members 
of the Subcommittee for the opportunity to testify today and am 
happy to answer any of your questions.
    [The prepared statement of Mr. Baldwin follows:]
               Statement of The Honorable Daniel Baldwin,
         Assistant Commissioner, Office of International Trade,
  U.S. Customs and Border Protection, Department of Homeland Security
    Mr. Chairman and Members of the Subcommittee, I am pleased to 
appear before you today to discuss the actions we are taking at Customs 
and Border Protection (CBP) to ensure the safety of imported food. My 
name is Dan Baldwin and I am the Assistant Commissioner in the Office 
of International Trade at U.S. Customs and Border Protection. My office 
holds the responsibility of formulating CBP's trade policy, developing 
programs, and enforcing U.S. import laws. The food and agriculture 
industry contributes significantly to the United States economy. As the 
value and complexity of our food imports continues to grow, CBP 
recognizes the challenges we face to maintain a safe and secure food 
supply. To meet this challenge, OMB and the relevant food safety 
agencies are collaborating on ways to most effectively address issues 
raised in GAO's designation of Federal Oversight of Food Safety as a 
high-risk item in February 2007.
    CBP has taken great strides toward securing America's borders, 
including the protection of our food supply and the economic health of 
American agriculture. Since September 11, 2001, CBP's priority mission 
has been to secure the Nation's borders from terrorists and terrorist 
weapons while facilitating the flow of legitimate travel and trade. In 
support of this mission, CBP has designed strategies to manage the risk 
of an agricultural product contamination that may cause harm to the 
American public or damage to the Nation's economy.
    CBP has worked extensively to coordinate activities and enforcement 
actions with USDA and HHS, and in particular the FDA. As the guardian 
of our Nation's borders, CBP has broad authority to interdict imports 
of food and agricultural products at the Port of Entry. We frequently 
interact with USDA and FDA on questions regarding enforcement action, 
as those departments house the subject matter expertise on food and 
agriculture admissibility standards. CBP is able to rely on the 
statutory authority of other federal agencies with the specific mandate 
of enforcing food safety regulations to finalize enforcement actions on 
food safety issues.
CBP'S CURRENT ENFORCEMENT STRATEGY
    As with our approach to anti-terrorism, CBP has taken a multi-
layered approach to protect the safety of America's food imports. In my 
testimony today, I would like to highlight the three key aspects that 
CBP has utilized in its efforts to date: CBP's National Trade Strategy, 
CBP Targeting, and CBP Personnel. After briefly discussing these three 
topics, I will discuss our experience with food safety operations.
NATIONAL TRADE STRATEGY: AGRICULTURE ESTABLISHED AS PRIORITY TRADE 
        INITIATIVE
    Pursuant to our twin goals of fostering legitimate trade and travel 
while securing America's borders, CBP has developed a National Trade 
Strategy to help our agency successfully fulfill our trade facilitation 
and trade enforcement mandate. Our National Trade Strategy is based 
upon six Priority Trade Initiatives (PTI), these PTI's are: Antidumping 
and Countervailing Duty, Intellectual Property Rights, Textiles and 
Wearing Apparel, Revenue, Agriculture, and Penalties. Under the terms 
of our trade prioritization strategy we focus CBP resources in our 
efforts to address areas of key trade importance. I would like the 
Committee to note that Agriculture is one of our six PTI's.
    The goals of the agriculture trade strategy include:
    1) The detection and prevention of agro-terrorism and bio-
terrorism, i.e., the intentional contamination of an agricultural 
product or food, or the intentional introduction of diseases or pests 
intended to cause harm to the American public, American agriculture, or 
the Nation's economy.
    2) The detection and prevention of the unintentional introduction 
into the United States of pests or diseases that would cause harm to 
the American public, American agriculture, or the Nation's economy.
    3) The detection and prevention of the unintentional introduction 
of adulterated, contaminated, or unsafe agricultural and food products 
into the United States that would cause harm to the American public, 
American agriculture, or the Nation's economy.
    4) The promotion of our Nation's economic security through the 
facilitation of lawful international trade and enforcement of 
regulatory trade laws.
TARGETING
    CBP uses various targeting mechanisms to ensure the compliance and 
safety of food and agricultural products imported into the U.S. These 
mechanisms are specifically designed to incorporate the food safety 
concerns of USDA and HHS.
    One of the systems used is our Automated Targeting System (ATS). 
ATS, which is based on algorithms and rules, is a flexible, constantly 
evolving system that integrates enforcement and commercial databases. 
ATS is essential to CBP's ability to target high-risk cargo entering 
the United States. ATS is the system through which we process advance 
manifest information to detect anomalies and ``red flags,'' and 
determine which cargo is ``high risk'' and should be scrutinized at the 
port of arrival.
    Another system CBP uses is the Automated Manifest System, which 
provides us with advanced cargo information to be used for targeting 
and screening of all imported merchandise. This advance information 
allows CBP to identify shipments of interest in advance of arrival. By 
identifying shipments in advance, CBP is better able to focus resources 
on those shipments which may be of concern, prevent their introduction 
into the commerce, and ensure appropriate coordination with other 
regulatory agencies.
    The Automated Commercial System (ACS), CBP's automated system of 
record for entry processing and cargo clearance, allows us to screen 
for additional food and agricultural risks. The majority of the 
targeting criteria present in this system are used to prevent the 
introduction of contamination, pests, or diseases. Approximately 87% of 
the cargo criteria in ACS are agriculture related.
    In addition to these CBP automated systems, CBP maintains the 
National Targeting Center (NTC). The NTC is the facility at which 
personnel from several separate government agencies are co-located to 
review advanced cargo information on all inbound shipments. At the NTC, 
CBP personnel are able to quickly coordinate with personnel from other 
federal agencies such as the FDA, Food Safety and Inspection Service 
(FSIS), and Animal Plant Health Inspection Service (APHIS) to target 
high risk food shipments
    Furthermore, the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002 (BTA) authorized FDA to receive 
prior information to target shipments of food for human or animal 
consumption prior to arrival. The BTA gave CBP the opportunity to 
assist FDA with the prior notice requirements. CBP worked in concert 
with FDA to augment an existing automated interface to institute a 
prior-notice reporting requirement with minimal disruption to the 
trade. In addition, under the BTA, we worked with FDA to commission 
over 8,000 CBP officers to take action on behalf of the FDA. This 
commissioning allows FDA to assert a 24/7 presence to enforce the Act 
at all ports.
PERSONNEL
    In addition to sophisticated targeting systems and coordination 
between agencies, CBP maintains a diverse workforce that is specially 
trained to detect and prevent imports that may be harmful to the health 
of the American public. CBP Officers and CBP Agriculture Specialists 
receive specific training on ag/bio-terror incidents. We currently have 
the ability to deploy more than 18,000 CBP Officers, 2,000 Agricultural 
Specialists, and 1,000 Import Specialists in response to emerging 
threats to our agriculture and food supply. Furthermore, CBP's 
Laboratory and Scientific Services (LSS) maintains seven separate 
laboratories around the country, with a 24/7 technical reach back 
center. LSS employs approximately 220 chemists, biologists, engineers, 
and forensic scientists.
    Our diverse workforce enables CBP to mount rapid and effective 
responses to protect U.S. agricultural resources by utilizing the 
specialized training of CBP Officers, Agriculture Specialists, Import 
Specialists, International Trade Specialists, and Laboratory 
Technicians. Each of these CBP occupations works together to gather 
intelligence, establish target criteria, gather and test samples, and 
analyze and report results. Because of their specialized training in 
the use of personal protective equipment for handling potentially 
hazardous or infectious materials, CBP Agriculture Specialists play a 
vital role during food safety operations.
FOOD SAFETY OPERATIONS
    Trade analysis and targeting methodologies designed to ensure the 
safety of the food supply allow CBP to proactively identify shipments 
containing possible food contamination prior to its arrival. This 
targeting allows us to fulfill our mission while allowing us to 
facilitate legitimate trade.
    While food safety has recently grown in importance in the public 
eye, CBP has been involved in food safety related initiatives for the 
past several years.
    In 2006, CBP was involved in the detection of numerous incidents of 
food contamination or smuggling of prohibited food products from China. 
A significant number of shipments of Chinese poultry products were 
seized including 45 containers smuggling prohibited product. CBP 
developed a food safety operation to combat the smuggling by targeting 
known smugglers of prohibited poultry products.
    In April 2007, it was discovered that food from China was 
contaminated with melamine potentially harmful to animals as well as 
humans. CBP initiated a special operation to determine the scope of the 
potential problem. The nature of the operation was to augment FDA's 
focus with the intention to assess the risk of contamination from 
countries worldwide and to identify possible transshipment of Chinese 
product. CBP sampled and conducted laboratory analysis, the results of 
which were coordinated with FDA.
    In this most recent action, CBP targeted and detained 928 entries 
(shipments) over a four-week period. Samples were pulled on 202 
entries, comprising over 400 separate production lot samples, and sent 
to CBP's laboratories for analysis. All samples tested negative for the 
presence of melamine. As a result of the operation, CBP tested samples 
of product from 23 countries and shipped by suppliers/producers that 
account for over 59% of the imported volume of the merchandise in the 
previous 12-month period. This scientific data gives the Government and 
the public assurance that the melamine issue relating to imports was in 
fact isolated to a few Chinese suppliers, and not a widespread, global 
problem. In coordination with FDA, CBP developed a follow-up monitoring 
program that uses a computer-generated statistical sample to measure 
ongoing compliance.
    This high profile enforcement effort has helped CBP refine its 
methodology to conduct future food safety operations and enhance our 
working relationship with other federal agencies. In response, CBP has 
developed a Concept of Operations Document for food safety to 
institutionalize our communication and cooperation as well as the 
methods, processes, and procedures. Additionally, this food safety 
incident has brought to the forefront the need to maximize the power of 
the government to respond to future food safety issues.
    As you are well aware, there have been further contamination 
issues, for example, with imported toothpaste and selected seafood. 
Based on lessons learned from the melamine incident, we are 
coordinating with FDA to develop an appropriate action plan 
commensurate with the threat.
CONCLUSION
    Food defense and food safety concerns will only increase as world 
trade in food and agriculture continues to grow and diversify. One of 
the methods CBP will use to ensure the safety of the food supply is to 
use statistical sampling to monitor for compliance. CBP will continue 
to approach this as a challenge worthy of a combined government effort. 
We will continue to partner with other federal agencies in order to 
refine our targeting skills and ensure the prevention of contaminated 
products from entering the U.S.

                                 

    Chairman LEVIN. All right. Now we will start our back-and-
forth, and each of us will be limited to 5 minutes, including 
the Chairman and the Ranking Member. We have an order here, 
and, as we said at the beginning, if we run out of time with 
you, if anyone on the Committee did not have a chance to 
question you, they will start with the third panel. So, let me 
just begin.
    There is no doubt about the complexity of these issues, the 
importance of these issues. I think for us to proceed 
effectively, we need to be forthright about what the facts are 
and not try to tilt them one way or the other. Mr. Spooner, for 
example, and we have heard this from USTR, a reference to the 
level of exports, but in order for you to connect with us, you 
also have to talk about the level of imports, because our 
constituents, they encounter both.
    You mentioned that, to put this in perspective, U.S. 
exports to China were greater than U.S. exports to India, 
Brazil and France combined. To put this in full perspective, 
the imports from Brazil, France and India were less than one-
third of the imports from China. So, I just urge you, and I 
have said this to our distinguished Ambassador at USTR, let us 
talk about both. The total imports in 2006 from those three 
countries was $85 billion. From China it was $287 billion.
    I also want to say to USTR, I did react to this sentence in 
this letter that Mr. Herger referred to, and I did earlier, 
that was signed by your boss Ambassador Schwab: The best way to 
achieve results on our goals that we share with the Members of 
Congress is not through the legislation currently being 
considered, but through continued direct, robust engagement 
with China's senior leaders. But let us remember USTR also 
talks about how it has filed cases against China in the WTO. 
So, essentially you are doing both. You are talking with 
leaders, but often at the behest of Congress you are filing 
cases. So just to pose the issue as legislation versus 
discussions really misses the point that we are also in some 
cases, I think, not enough taking action that goes beyond talk.
    So, therefore, Mr. Sobel, let us, you and I, chat for a 
minute. It is interesting, your language that Congress is 
currently considering legislation to counter perceived unfair 
currency practices. Forget for a moment the issue of 
manipulation. Do you have any doubt that Chinese, that China, 
the Chinese government is engaging in unfair currency 
practices? I mean, forget for a moment the issue of whether or 
not it is something that meets the standard the Treasury has to 
deal with. Is there any doubt that these currency practices are 
unfair?
    Mr. SOBEL. Thank you, Congressman.
    Chairman LEVIN. I am not sure you want to thank me. Really, 
aren't they intervening directly in the market?
    Mr. SOBEL. As I noted in the opening of my testimony, 
Congressman, I thank you because you are raising a very 
legitimate question and point.
    Chairman LEVIN. What is the answer?
    Mr. SOBEL. As you know, we think that for China it is not 
just a question of currency. China faces the transformation of 
its whole economy from a command to a market system. It goes 
well, well beyond currency issues; it's about the entire 
structure of the economy.
    Now, when it comes to currency issues, we said very clearly 
in our reports and in testimony today that the Chinese currency 
is undervalued. We have said that China relies far too much, in 
our view, on exports. I frankly think that not only do we know 
it, but I think the Chinese know it.
    Chairman LEVIN. But doesn't that add up to an unfair 
policy?
    Mr. SOBEL. On the question of is it fair or unfair, I can 
only tell you I find such terms highly subjective. I find the 
question of fairness in the eye of the beholder. What I find is 
crystal clear is that the Chinese are on a path of trying to 
reform, but they are doing it gradually. My feeling is that by 
being so gradual, they are running major risks for themselves 
as well as for the world economy.
    Chairman LEVIN. For the U.S.
    Mr. SOBEL. I think China and the U.S. are all part of the 
global economy. I had a statistic in my testimony that U.S. and 
Chinese growth over the last 5 years accounted for 40 percent 
of the world in total. So, obviously China's growth affects the 
global economy.
    I think in the final analysis we need to stay continuously 
engaged with China. We need to push forward the relationship 
across a broad economic front. Most importantly what I am 
focused on and what my job is, is to advise the Secretary to 
help get that job done and to help work with China to fix its 
problems rapidly.
    Chairman LEVIN. My time is up. I hope others will pursue 
the question, including you are opposed to any legislation even 
if it is WTO-consistent, right, you are? If you could, yes or 
no?
    Mr. SOBEL. Again, we think that robust, high-level 
engagement is the best path forward. We don't think that 
legislation will strengthen our hand in reforming the Chinese 
economy or enhance our engagement with China.
    Chairman LEVIN. Okay. Mr. Herger, your turn.
    Mr. HERGER. Thank you, Mr. Chairman.
    Mr. Brinza, I understand that USTR has numerous concerns 
with the bill we are examining today, not just whether they 
would accomplish the goals that they set out to do, but also 
whether they are consistent with our WTO obligations and would 
invite harmful retaliation against us, against our U.S. 
companies. I don't want to put you in a position today of 
having to lay out in a public setting exactly what legal WTO 
inconsistencies are. After all, there is no need to give our 
trading partners a legal road map to use against us. However, I 
am pleased that the USTR briefed the staff in detail before 
this hearing about all the problems you see.
    According to the Census Bureau, since China joined the WTO, 
U.S. exports to China have increased at a faster pace than U.S. 
imports from China. I am still trying to figure out why we 
should put the exports of our manufacturers' high-tech, ag and 
financial services companies at risk by moving WTO-inconsistent 
legislation.
    Mr. Brinza, could you elaborate on the risk of retaliation 
these companies face, and also on the prospect that our trading 
partners may put in place copycat legislation intended to close 
their markets to our goods?
    Mr. BRINZA. Thank you, Mr. Herger. As you mentioned, we did 
express concerns with respect to the legislations being 
considered, including the concern that you mentioned with 
respect to the potential for retaliation and the potential for 
copycat and mirror-image legislation. As you pointed out, we 
don't want to go into a public detailing of the basis for those 
concerns. We have briefed the staff on that. But we would say 
that we have seen that requests for authorization has just been 
concessions. The WTO in the past have covered both goods, 
services and intellectual property. Those are the types of 
requests that we would be able to anticipate seeing from trade 
partners in the future if they were to have a finding that the 
U.S. had acted in a WTO-inconsistent manner. Thank you.
    Mr. HERGER. Thank you.
    Mr. Spooner, I wonder if the USTR has submitted a proposal 
as part of the Doha Round to seek clarification of U.S. rights 
and obligations with respect to the practice of zeroing. But 
the rules haven't been changed yet, and no one can say for sure 
whether they will change. In the meantime there are outstanding 
WTO appellate body rulings that limit our use of the practice. 
If legislation forced the Department to revert to its prior 
practice, wouldn't the United States necessarily be out of 
compliance with our obligations and in turn expose our exports 
to retaliation?
    Mr. SPOONER. Thank you, sir. The answer is similar to the 
answer Mr. Brinza gave. I would hesitate a bit to be definitive 
should the legislation pass, but the appellate body has been 
fairly clear on zeroing. If we were to pass legislation that 
put us out of compliance with our WTO obligations, our trading 
partners would obtain the ability to take retaliatory action or 
withdraw concessions against our exports and our services. So, 
yes, you are right, and it may take years to resolve this in 
the WTO rules negotiations. So, we could potentially subject 
ourselves to years of retaliatory action.
    Mr. HERGER. I thank you. This is really a tightrope we are 
walking. We, the United States, many times we are not--people 
aren't aware, our citizens, that we as the United States are 
the number one trading nation in the world bar no other. 
Certainly the district I represent, a heavy agricultural area, 
cannot eat all the specialty crops, rice, that we grow. We are 
dependent on exporting. Therefore, we need to be very cautious 
that we not go down the same road that we did in the thirties 
where we could get a tit-for-tat type of situation where we 
begin to close down the great trading ability that we have and 
opportunities out there.
    Anyway, I thank you very much, a very important hearing 
today, and I thank each of you.
    Thank you, Mr. Chairman.
    Chairman LEVIN. Thank you.
    Mr. Pascrell.
    Mr. PASCRELL. Thank you.
    Before I get to my points and questions, I would just like 
to respond to what I have just heard, if I may. The words as 
spoken by the Trade Representative is more evidence to me, I 
think, and to others of how we can play with figures.
    Your warning to us, Mr. Spooner, that we should depend more 
on dialogue rather than legislation is an essential departure 
from what is going on in the Congress right now. Under Article 
I, section 8, the Congress of the United States, this present 
Congress, will exert itself on both sides of the aisle, in a 
cautious fashion perhaps, but not in any manner, shape or form 
relinquishing our responsibilities. We have a responsibility in 
the Congress, as well as the Administration and the Trade 
Representative. We will exhibit our responsibilities, and we 
will fulfill our responsibilities. The Congress has set sail 
with a very different compass in the ocean of trade. It will 
never be the same. We are able to see clearly, and we will 
remove the pirates from the scene.
    In addition to addressing trade-distorting currency 
practices, I believe that this Committee also must address the 
disadvantage to U.S. producers and service providers caused by 
the imposition in rebating foreign-border adjusted taxes, 
mostly in the form of value-added taxes. When identifying the 
causes of the uneven playing field in its massive U.S. trade 
deficit and manufacturing job losses, border-adjusted tax 
schemes stand out as one of the very worst offenders. In 2005, 
the imposition in rebating border-adjusted taxes disadvantaged 
U.S. producers and service providers, Mr. Chairman, by an 
estimated $379 billion. U.S. trade with China in goods alone 
accounted for an estimated $48 billion of that disadvantage.
    China levies VAT taxes, like many other countries, on 
imports from the United States and generally rebates any VAT 
paid by producers in China on exports to the United States. As 
China's VAT rate in 2005 was 17 percent, these impositions and 
rebates have a significant impact on the price of goods and 
services. In contrast, the United States, which does not have a 
VAT, but instead utilizes a direct tax on property, on income, 
levies no similar taxes on the border on Chinese imports, as 
well as on the other 137 countries that we trade with. So, 
producers in China selling in the United States pay neither the 
U.S. income tax, pay neither the payroll tax nor their own VAT. 
As a result, this severely tilts the playing field and places 
United States domestic manufacturing at a great competitive 
disadvantage.
    My question to the panel is this: I would like to hear from 
the panel their views on the fact that most imports into the 
United States are subsidized by foreign VAT rebates, value-
added tax rebates, and all U.S. exports are not. To what degree 
do you feel this is unfair? How does it affect America workers? 
What solutions would you suggest to the Congress of the United 
States?
    Chairman LEVIN. All in 1 minute, who wants to try that.
    Mr. SPOONER. I will try to be brief. First of all, 
Congressman, I hope and believe that I didn't say that we 
should disregard enforcement at the expense of dialogue, we 
should use all the tools in our tool box, including 
enforcement. For that reason, we just reversed 23 years of 
precedent and applied our anti-subsidy law to China, which 
opens a tremendous avenue for U.S. manufacturers to address 
unfair trade in China. Also, we have 27 percent of our dumping 
orders affect Chinese exports, a higher percentage than any 
other country.
    Under our international obligations, in order for us to 
countervail at that rebate or any other subsidy, we have to 
show there was a financial contribution by the government that 
conferred a benefit that was specific. There are also separate 
VAT rebate provisions in the WTO, which perhaps USTR can speak 
to it a little better than I, but we wouldn't hesitate to 
countervail that program or any other program as long as we 
receive a petition that jumps over the legal hurdles and that 
meets our international and domestic requirements for 
countervailable subsidy.
    Chairman LEVIN. I think to follow our rule and cut this 
off, maybe we can come back to it at another hearing. I want to 
be fair to all of our colleagues. We have a wonderful array of 
the Subcommittee here.
    Mr. PASCRELL. Mr. Chairman, I have introduced the 
legislation, the border tax equity. It has bipartisan support, 
H.R. 2600, that would stop the charade and force countries, 
including China, to abandon these distortions. China is not the 
problem. We are the problem. Unless we face up to the problems 
that you have heard on both sides of that desk today, unless we 
address those problems, these are not going to go away, so I am 
not throwing caution to the wind, what I am saying is, we will 
live up to our responsibilities, that is all I am asking.
    Thank you, Mr. Chairman.
    Chairman LEVIN. Thank you.
    Mr. Lewis.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Mr. Sobel, I understand the concern about the value of 
China's currency. Can you discuss all the effects of the 
valuation? Has it had an impact on inflation or U.S. interest 
rates? How would these proposals to coerce China to increase 
the value of currency impact U.S. inflation and the interest 
rates?
    Mr. SOBEL. Thank you, Congressman. I think that to be sure 
if we are importing goods from another country and the other 
country's currency is rising in value, that would mechanically 
feed into raising U.S. import prices to some degree. But 
obviously, imports are only so much of our country's total 
consumption basket. In addition, imports from a given country, 
China, is a small portion of that. So, it would put pressure on 
import prices that, to the extent that the country's exporters 
didn't absorbed the higher prices in their profit margins, 
could have some modest upward pressure on U.S. prices.
    In terms of what effect diminished demand by foreigners for 
U.S. financial assets would have had on us, we have a very, 
very deep capital market and there is a lot of confidence in 
our market. There are marginal buyers for marginal sellers. 
Diminished demand for our assets could put some upward pressure 
on interest rates and you are right in this regard. But still, 
it is very, very difficult to answer these things with any 
precision, but you raise legitimate issues that are worthy of 
analysis and exploration.
    Mr. LEWIS. Also a columnist has said, 60 percent of the 
growth in Chinese exports over the past decade was from foreign 
invested enterprises, not Chinese domestic companies. As we in 
Congress approach these issues, I think we need to recognize 
the U.S. entities have a footprint in China, and any action to 
redress the problems would have effects on these interests.
    How can we ensure that we are taking these interests into 
account as we move forward?
    Mr. Sobel.
    Mr. SOBEL. You are very right about the large foreign 
presence in China and the impact on us. I think I've even seen, 
I am sure the Chairman knows far better than I do, that some of 
the U.S. auto makers have arrangements with the Chinese and 
that their production is quite strong.
    I think that the best way to deal with these issues, 
Congressman, is through the path of engagement with China and 
to get China to do a far better job in playing by the 
international rules of the game. That is something that we have 
to work through very hard with them and intensively.
    Mr. LEWIS. Thank you, I yield back.
    Chairman LEVIN. Thank you very much.
    Mr. Meek?
    Not here. He will be back.
    So, next, would be Mr. Crowley. We are going in the order 
of your arrival.
    Ms. BERKLEY. I will try to be earlier next time.
    Chairman LEVIN. Look, we know this is a particularly busy 
time, and I think it shows the level of interest that we are 
all here. We may not be able to stay every minute, but 
everybody should know that that signifies the seriousness on 
both sides; both Republicans and Democrats have to go various 
places. So, we know you tried to be here as quickly as 
possible.
    Mr. Crowley, you came next.
    Mr. CROWLEY. Thank you, Mr. Chairman. I will certainly stay 
within the 5-minute rule. I was just perusing an article in 
today's CQ magazine as to what the Senate is also doing as it 
pertains to currency fluctuation, and what I would like to see 
done in terms of manipulation in term of China.
    My first question is for the Treasury, I would like to ask 
Secretary Sobel, it is my observation we can focus on currency 
manipulation and penalties, but if the Treasury decides to not 
name a country as a currency manipulator with what we are doing 
right now could be irrelevant.
    Does Treasury plan on changing its position on who will be 
named as a manipulator in the future?
    Mr. SOBEL. Congressman, under the statute that we have, we 
are required to find whether a country manipulates its currency 
for the purpose of preventing effective balance of payments 
adjustment or gaining an unfair competitive advantage in 
international trade, that is the statute under which we have 
written our reports.
    Now, I know that there are many who disagree with the 
designation findings the Treasury has reached, under our 
reports, and so I frequently am asked--if China isn't 
manipulating its currency for these purposes, what is it doing?
    My view is that the reason China is conducting the policy 
that it has right now is that for many years, like many 
emerging markets in less developed countries, it had a rigid 
exchange rate arrangement. There is nothing inconsistent about 
exchange rate pegs with the IMF articles. In fact the entire 
Britain Woods System was kind of a pegged system. One of things 
that all countries have found is that exiting from an exchange 
rate peg and moving to a floating exchange rate system, which 
is exactly where we think China needs to move--a floating 
exchange rate system with an independent monetary policy--is a 
very difficult transition. We saw all these exchange rate pegs 
blow up in the Asia crisis a decade ago. So, I think that is 
one reason the Chinese are being, in our view, overly gradual. 
They are worried about a weak banking system and its ability to 
cope with massive inflows and outflows. They are worried about 
what currency factors might do to rural stability.
    So, under the law, we are supposed to assess intent: is it 
for the purposes of gaining unfair competitive advantage 
international trade? Is it for preventing effective balance 
payment adjustment? In our view, these are some of the factors 
above that are motivating the Chinese. Just to say, we talk to 
the Chinese all the time about currency issues. We miss no 
opportunity to raise it with them and to tell them to move much 
faster. We tell them we are dissatisfied with the rate of 
progress.
    Mr. CROWLEY. I appreciate that. Just to answer the question 
again, does the Treasury plan on changing its position on who 
will be named the manipulator in the future? Just more direct, 
whether or not you believe there will be any adjustment to 
that? We are running out of the time.
    Mr. SOBEL. Under the current law, we continue interpreting 
the current law as we do and continue applying it.
    Mr. CROWLEY. Okay, so that's a no.
    Let me just move on. Speaker Pelosi recently appointed me 
the chair of the parliamentary exchange between the People's 
Congress, in the U.S. House of Representatives. I am very 
grateful for that. I have been having preliminary discussions 
with those legislators on the other side the world.
    How much of an impact on our trade deficit will any of the 
legislation before us have on the trade deficit as you see it?
    Mr. SOBEL. Congressman, I haven't assessed that, I think it 
is very difficult to judge. Obviously, the legislation before 
you hasn't been enacted, but I do think that--and the bills are 
quite wide ranging----
    Mr. CROWLEY. Do you believe that broadening to markets in 
China is an important aspect of what we are trying it 
accomplish here?
    Mr. SOBEL. Do--absolutely.
    Mr. CROWLEY. What are we doing to support that?
    Mr. SOBEL. The Secretary spends tons of time working on 
these issues as do all of the Members of the Cabinet. On the 
financial sector alone, which is something that is in the 
Treasury's lane, we have pressed the Chinese incredibly hard to 
open up their access to foreign financial service providers. We 
have seen improvements lately. For example, they raised 
something called the Qualified Foreign Institution Investor 
limits, which will allow in the next few months, U.S. access to 
the stock market to increase $20 billion, a small amount, but 
it is a concrete example and something that is very important 
to our financial firms.
    Mr. CROWLEY. I thank the Chairman.
    Mr. Chairman, if I could just state, the Members are 
imposed to stick to 5 minutes in terms of questions and 
answers. I would ask for the panelists if they could shorten 
their answers possibly to enable Members to have an opportunity 
to ask more questions. Thank you.
    Chairman LEVIN. Mr. Crowley, you have still a further 
dilemma; we have four votes, and that is supposed to be 25 
minutes; right?
    Mr. MEEK. 30.
    Chairman LEVIN. The three votes, but--it's 30 minutes. You 
are right, but it won't be more than 30. Is that available? All 
right, we could go to B-318. Here is the problem: This 
wonderful room has to become available, now they are saying at 
12:30 because of security purposes, for the Vanderjagt 
reception. I was told--lets adjourn to 318. So, do you mind 
staying, or is that possible? We will spend another 15 minutes 
with you and then go to the third panel.
    Is that what you would like to do, Ms. Schwartz?
    Ms. SCHWARTZ. Thank you, Mr. Chairman.
    I am not a Member of the Subcommittee. I don't have a 
comment on your question, it sounds like a good plan to me.
    What I was hoping is that I might be able to submit a 
question that you might be able to submit to the panel. I was 
particularly concerned, as I know you are, about the 
Administration not acting on any of the ITC recommendations on 
section 421, so I wanted to ask about that. If I could submit 
that for the record, that would be great.
    Chairman LEVIN. I leave it to Mr. Meek and Mr. Reynolds. 
Should we start with the third panel when we return? Is that 
agreeable to you or not?
    Mr. REYNOLDS. If I may just make a comment.
    Chairman LEVIN. Go ahead, do that. Mr. Meek, we have 8 
minutes, so make a comment if you would, Mr. Reynolds.
    Mr. Meek, you will have a couple minutes and then we will 
recess. Go ahead.
    Mr. REYNOLDS. I thank you, Chairman. As I listen carefully 
to this panel, my records should be very clear that I am 
considered a free trader and support fair trade throughout the 
globe, but I want to caution the panelists from the 
Administration today that, whether it be my district where I 
still face challenges of a third and fourth generation company 
called Eastman with intellectual property challenges in China 
by a knock-off called Westman, looks identical to that, and 
they have testified before this very Committee, or Chinese 
dumping that we faced with apple juice concentrate and the 
challenges we had in having a fair day for our farmers, apple 
growers, both in New York and in the State of Washington or 
Corning, which is the signature U.S. company that in my region 
with market access.
    My point I think is when we look at the currency issues, I 
am frustrated, I have listened very carefully to Secretary 
Paulson and others as to realities and have accepted that it 
may not come as fast as I'd like, but there needs to be a focus 
on an accelerated pace in the type of changes that the currency 
manipulation, as I believe is occurring in China, begins to 
move. There is a bipartisan concern on this from not only those 
who may be considered protectionists in the eyes of some, but 
from those of us who are on the free trade, fair trade 
equation. You can't ignore a vote in Senate Finance yesterday 
of 20-1 or the Senate Banking Committee, 17-4; that is a 
bipartisan message to both our own country but also to the 
world. So when we continue to look today, another company in my 
region, Fisher-Price, finds themselves with a disclosure of 83 
lines of toys, a million toys, plastic toys having to be 
recalled that puts us into the mix of product and food safety, 
as all our colleagues testify.
    I want representatives of the Administration to clearly 
understand here that, when it is said that maybe the Chairman--
we don't need legislation, I must just say that there needs to 
be a fair warning to everyone that the legislation that is 
beginning to get developed in the Congress may not be totally 
to anyone's complete liking, but there is now a route for a 
message of action. I just want you to know that the 
Administration thinking that legislation is not needed, when 
you look at the bipartisan message coming out of both Houses, 
be ready, the fact that there is a boiling point in the 
Congress coming from the people of America saying, we need to 
do better than what is happening so far.
    I thank you, Mr. Chairman.
    Chairman LEVIN. Thank you, I am glad I recognized you. I 
mean that seriously, the reference to the Senate.
    Mr. Meek, why don't you take a couple of minutes?
    Mr. MEEK. Mr. Chairman, I am going to have a bill on the 
floor after this round of votes, but I would for my good friend 
from New York, I would almost say ditto, that actually took 
from my talking points of what happened in Senate. He probably 
saw them in the back room or something, but I can tell you, Mr. 
Chairman, not only this panel, but I look forward to the third 
panel. I will be in and out, but the Members who came before us 
today in their testimony that it is a mounting concern. I think 
that we should--I know we are getting the evidence. We are 
setting the Committee testimony, but I believe for us to really 
tackle this issue and get the attention of China, that we are 
going to hopefully have to mark up something pretty soon in 
this area. I look forward to working with the Committee and 
taking the input from this panel.
    I think that this is so very, very important, especially in 
my area. I have Perry Ellis. I have a number of other companies 
that are there that are affected by the very issue that we are 
talking about now, and I look forward and am ready. So, I will 
leave my comments for the third panel. Hopefully, I will be a 
part of that.
    Chairman LEVIN. We will come back here. I think we can do 
it. So, therefore, you can return to your 8:00 a.m. to midnight 
jobs. Thank you very much for coming. We are in recess, and we 
are going to start the minute Mr. Herger and I return. We will 
scoot right back for the panel. Thank you again. We are in 
recess.
    [Recess.]
    Chairman LEVIN. So, I don't have to apologize for the 
disruption, and we have another vote in an hour, so I think we 
will proceed and wait just for a second. I will introduce you I 
think in the order that is on this script here: Mr. Williams, 
who is the executive director of the Southern Shrimp Alliance 
from Florida; Skip West, who is the president of MAXSA 
Innovations on behalf of the Consumer Electronics Association; 
Skip Hartquist who is a partner in Kelley, Drye & Warren LLP; 
Lewis Leibowitz, welcome to you, a partner at Hogan & Hartson 
LLP; and Robert Lighthizer.
    So, let us just wait a couple of minutes. I talked to a lot 
of my colleagues on the floor and many of them said they had to 
do other things in these last 36 hours presumably, but I can 
assure you, I think you saw from the participation here, there 
is immense interest, and we will make doubly sure that your 
testimony is not only entered into the record but is widely 
circulated. My guess is this won't be the only time that we are 
discussing the issues that you are going to touch on today. So, 
we will wait just a second, and then we will begin.
    All of your testimonies will be entered into the record, as 
you know. You heard the testimony, I think all of you have been 
here from the beginning, right? So, you heard the back and 
forth and so don't hesitate since your testimony will be in the 
record if you would like to comment on the testimony you heard. 
In some ways, that makes it all doubly effective.
    Mr. Herger has used modern technology and e-mailed the 
chief of staff of the minority--you arrived before your e-mail. 
Congratulations, you have invented something new; that is 
terrific.
    I introduced the five final panelists, so, Mr. Williams, if 
you would start and the rest of you just go ahead.

  STATEMENT OF JOHN A. WILLIAMS, EXECUTIVE DIRECTOR, SOUTHERN 
            SHRIMP ALLIANCE, TARPON SPRINGS, FLORIDA

    Mr. WILLIAMS. Mr. Chairman and Members of the Committee, my 
name is John Williams, and I am the executive director of the 
Southern Shrimp Alliance, and I appreciate the opportunity to 
testify in support of congressional actions to preserve the 
integrity of our Nation's trade remedy laws.
    While the U.S. shrimp industry produces the highest quality 
shrimp at competitive prices, our way of life is currently 
under attack to by unfairly traded imports from China and other 
countries.
    I understand the Committee is considering trade legislation 
that would hold nonmarket economy countries to the same level 
of accountability as the rest of our Nation's trading partners. 
I strongly support that bill, H.R. 1229, as introduced by 
Representative Arthur Davis and Phil English, but fair and 
effective trade laws do not stop with just nonmarket economy 
countries. As part of the domestic industry that has been 
devastated by unfair imports from both nonmarket economy 
countries and market economy countries, I have firsthand 
knowledge of the need for comprehensive trade reform 
legislation. That is why I believe H.R. 1229 would benefit from 
the inclusion of two other vital provisions that would apply to 
all unfairly traded imports.
    These provisions, as included in H.R. 2714, would correct 
the flawed decision of the WTO, Commerce and U.S. judges 
regarding offsets, often referred to as zeroing, and the 
appropriate method for determining injury to a domestic 
industry. H.R. 2714 would ensure the trade laws are not 
weakened by these erroneous decisions. H.R. 2714 could delay 
the implementation of the WTO offset rulings until the United 
States has reached a negotiated solution and would require 
Commerce to reverse its decision to adopt offsets. To implement 
these decisions would be like a death knell for domestic 
industry injured by unfair trade, especially the United States 
shrimp industry, as dumping margins would no longer accurately 
reflect the true measure of dumping.
    This is certainly what has happened in the current anti-
dumping case on shrimp imports from Ecuador. Just last week, 
Commerce determined that it is abandoning its long standing 
practice of zeroing in the Ecuador proceeding. We provided a 
Commerce with several alternative calculation methodologies 
that are WTO compliant and would have kept the Ecuador order in 
place. Commerce refused to adopt any of these methodologies. 
Its decision will result in the termination of critical trade 
relief on dumping Ecuadorian shrimp imports unless the USTR 
decides not to implement Commerce's decision.
    I want to make clear to the Committee that revocation of 
the order is not based on any changes in the behavior of 
Ecuadorian exporters but because Commerce decided not to defend 
trade relief. U.S. law has not mandated the termination of the 
Ecuador order; Commerce is not even required to use a 
particular method to calculate dumping margins.
    What is particularly troubling is this outcome, in the face 
of viable alternatives, strongly suggests that reports of an 
agreement between Ecuador and the United States that the order 
be terminated in fact are accurate, not withstanding denial by 
U.S. officials.
    H.R. 2714 would also ensure that the requirements imposed 
by the Bratsk decision would never be put in place. In Bratsk, 
the court held that the ITC must determine whether imports from 
countries not under investigation would replace the 
investigated imports. The ITC would have no data on which they 
could base their decision. Essentially the Bratsk decision 
asked the ITC to channel psychic abilities to see into the 
future of the U.S. market and the future performance of foreign 
producers, not even subject to the investigation.
    Congress has never required the ITC to consider any of 
these factors. The standard of the law is clear, and the ITC 
does not and should not play in the hypothetical. In 
conclusion, I want to return to the zeroing issue because it is 
the issue that is most urgent to our industry. While I am not a 
trade attorney, I do know something about right from wrong. In 
my opinion, what is happening with the WTO, the Commerce 
Department and zeroing is wrong. How can a country be violating 
the trade laws by dumping their product into this Nation one 
day and not the next when the only thing that has changed is a 
ruling by the WTO that our own government keeps telling us is 
wrong and must be changed? Commerce's decision will be 
devastating to the domestic shrimp industry and would leave 
thousands of U.S. workers and business owners defenseless 
against unfair trade.
    What is really disappointing and perplexing is the fact 
that the Commerce Department has alternative calculation 
methodologies that are WTO compliant that would preserve the 
order, but they chose not to consider them. Given the fact had 
Commerce chose a method that is most harmful to the domestic 
industry, it is understandable that so many U.S. businesses and 
workers have lost confidence that Commerce will enforce the law 
to defend U.S. industry by unfair trade as Congress intended.
    How do I go back and tell the tens of thousands of folks 
throughout the eight States associated with the domestic shrimp 
industry that the WTO has just effectively eliminated any 
chance for our recovery without giving the USTR an opportunity 
to address this issue. What I would like to tell these folks is 
that we have a Committee on Ways and Means that they be proud 
of and that this Committee has taken our concerns seriously and 
will work together across party lines to ensure that our 
industry is not placed in a position where foreign companies 
can dump their product into the U.S. with impunity.
    I am speaking today about fairness, the domestic shrimp 
industry, at one time the most valuable fishing industry in the 
United States, has been brought to its knees these past 4 years 
due to trade law violations and natural disasters, but even as 
down as we are, we can still compete with any foreign 
competitors, as long as everyone plays by the rules.
    One thing I would also add is that when Congress speaks 
about free trade agreements, I wish they would strike that word 
free from that term and replace it with the word fair and work 
toward that goal. Some U.S. industry always suffers in this 
kind of an agreement. If you don't think the folks out there 
are hurting because of these trade agreements, just ask them; 
they will tell you.
    In closing, we are rapidly becoming a nation of consumers 
and not producers, and that is frightening going into the 
future. To counter this trend, we must have effective trade 
laws with a strong enforcement mentality from the 
Administration. That is why I'm here today urging you to enact 
these essential trade agreement amendments. Thank you.
    [The prepared statement of Mr. Williams follows:]
           Statement of John A. Williams, Executive Director,
           Southern Shrimp Alliance, Tarpon Springs, Florida
    Mr. Chairman and Members of the Committee on Ways and Means 
Subcommittee on Trade, my name is John Williams and I am the Executive 
Director of the Southern Shrimp Alliance. I appreciate the opportunity 
to testify in support of legislation and other congressional action 
that would preserve the integrity of our Nation's trade remedy laws. 
While the U.S. shrimp industry produces the highest quality shrimp at 
competitive prices, our way of life is currently under attack by 
unfairly traded imports from China and other countries. The hearing 
today is focused on the trade laws and China. Our concerns and 
recommendations relate to unfair trade from China and other countries 
that abuse the U.S. open market policy.
    Unfortunately, attacks do not come just from foreign producers. The 
U.S. shrimp industry--and I believe all domestic industries--are being 
undermined by recent decisions issued by the WTO Appellate Body, the 
U.S. Department of Commerce (``Commerce'') and U.S. courts.
    Most recently, we have been hit the hardest by the Department of 
Commerce. Just last week, Commerce issued a determination in our case 
on shrimp imports from Ecuador that so heavily skews in favor of unfair 
trade that the entire antidumping order may well be terminated.\1\ 
Without any change in their behavior, Ecuadorian shrimp exporters were 
given a free pass by Commerce to continue dumping in our market. The 
Commerce Department refused to consider alternative calculation 
methodologies that are fully consistent with the WTO decisions but that 
would have retained the dumping order on Ecuador. Let me be clear, by 
adopting the least desirable method of implementing the WTO decision, 
rather than the most desirable method as is required by the law, the 
Department of Commerce proposes to terminate the order on Ecuadorian 
shrimp.
---------------------------------------------------------------------------
    \1\ The SSA, through a Subcommittee, the Ad Hoc Shrimp Trade Action 
Committee, filed six antidumping petitions in 2003 resulting in 
antidumping duty orders against shrimp imported from China, Brazil, 
India, Thailand, Vietnam, and Ecuador.
---------------------------------------------------------------------------
    We have tried to resolve the problem of unfair trade ourselves by 
appealing to Commerce with facts and reason, but it has fallen on deaf 
ears. It is time for Congress to step in and reestablish the 
effectiveness of our Nation's fair trade laws. What is particularly 
troubling is that this outcome, in the face of viable alternatives, 
strongly suggests that reports of an agreement between Ecuador and the 
United States that the order would be terminated are in fact accurate, 
notwithstanding denials by U.S. officials.
    I understand the Committee is currently considering trade 
legislation that would hold non-market economy (``NME'') countries, 
especially China, to the same level of accountability as the rest of 
our Nation's trading partners. I strongly support that bill as 
introduced by Representatives Artur Davis and Phil English, H.R. 1229, 
the ``Nonmarket Economy Trade Remedy Act of 2007.''
    But fair and effective trade laws do not stop with just NME 
countries. As part of a domestic industry that has been devastated by 
unfair imports from both NME countries, including China and Vietnam, 
and market economy countries, including Brazil, Ecuador, India and 
Thailand, I have first-hand knowledge of the need for comprehensive 
trade reform legislation.
    That is why I believe H.R. 1229 would benefit from the inclusion of 
two other vital provisions that would apply to all unfairly traded 
imports, whether from China, other NME countries or market-economy 
countries. Those provisions, as introduced by Representatives Barrett, 
Neal, Spratt and Regula in H.R. 2714, would correct the flawed 
decisions of the WTO Appellate Body, Commerce and U.S. judges regarding 
offsets and the appropriate method for determining injury to a domestic 
industry. I thank these Representatives for standing up for fair trade 
and domestic producers. They truly understand that our trade system 
lives and dies by the letter of the law, as enacted by Congress and as 
the United States has agreed to with its trading partners. We cannot 
allow WTO panels and activist judges to rewrite our Nation's fair trade 
laws.
    In addition, I strongly urge the Committee to reign in Commerce's 
illegitimate actions through your role in consultations with the U.S. 
Trade Representative (``USTR'') on whether or not to implement 
Commerce's flawed decision to terminate the antidumping order on 
Ecuadorian shrimp imports. We are all aware of the United States' 
strong opposition to the decisions regarding offsets and it is not 
appropriate for Commerce to implement these decisions in a way that is 
most forgiving of proven unfair traders.
    I share my concerns with you today as a proud member of the 
domestic shrimp industry. I have been a shrimp fishermen for over 40 
years and, together with my wife Kathleen, own three shrimp boats in 
Tarpon Springs, Florida. Like the rest of my industry, shrimping is 
more than a business to me, it is a way of life. Shrimping is a proud 
tradition that has defined and sustained entire seaside communities 
throughout the Gulf Coast and Southeastern Seaboard.
    But our way of life is threatened by unfair trade. U.S. shrimpers 
and processors are no longer able to make ends meet because the U.S. 
market has been flooded by unfairly traded imports. As a result, our 
families, local businesses and the communities that depend on shrimping 
are also facing serious financial difficulties.
    Confronted by unfair trade, our industry chose to unite to stop the 
injury caused by dumped imports. The Southern Shrimp Alliance 
(``SSA''), founded in 2002, is a non-profit alliance of the hard-
working men and women of the U.S. shrimp industry. As the national 
voice for shrimp fishermen and processors in eight states--Alabama, 
Florida, Georgia, Louisiana, Mississippi, North Carolina, South 
Carolina, and Texas--we are committed to preventing the continued 
deterioration of America's domestic shrimp industry. The SSA is 
developing marketing plans for domestic shrimp, lobbying for more 
stringent controls and testing of banned chemicals, fighting to 
continue the antidumping duties imposed on shrimp, and working with our 
government on issues that affect the U.S. shrimp industry.
    Shrimp is the top-selling seafood in the United States. Wild-caught 
American shrimp is premium-quality seafood caught by American shrimpers 
and delivered fresh to local docks. People who eat wild-caught American 
shrimp can be assured that their shrimp meets the standards for U.S. 
quality and consistency. Wild-caught American shrimp mature at a 
natural pace, flourishing in nutrient-rich marshes and estuaries before 
naturally migrating to the Atlantic Ocean or Gulf of Mexico.
    With imported shrimp, Americans cannot be sure what it is they are 
eating. Farm-raised in crowded and dirty ponds, with almost no quality 
control, imported shrimp often contains pesticides, filth and banned 
antibiotics.
    The quality of American shrimp is unbeatable, but before we were 
able to obtain trade relief, the U.S. shrimp industry was driven to the 
edge of collapse by unfairly traded shrimp imports. We are talking 
about thousands of jobs, life-time investments, and entire fishing 
communities being wiped out by unfair trade. Average hard-working 
shrimp fishermen in our communities throughout the entire Gulf Coast 
and Southeastern Seaboard saw their livelihood destroyed by foreign 
producers who are just not playing by the rules.
    By the time the domestic shrimp industry filed for trade relief, 
aggregate shrimp imports had increased significantly from 2000 to 2002, 
while import prices plunged. Shrimp imports from large exporting 
countries exploded during this time: Vietnamese imports increased 169 
percent, Chinese imports increased 73 percent, Indian imports went up 
74 percent, and imports from Brazil increased 210 percent. As a result, 
the market share held by U.S. producers fell significantly.
    The effect of this import surge was devastating. The International 
Trade Commission (``ITC'') found that vast majority of shrimp fishermen 
incurred net losses in 2004, while a minority of fishermen had posted 
losses in 2001. Not surprisingly, employment in the industry declined 
sharply from 2001 to 2004. I was lucky enough to have made it through 
this time, but we all made sacrifices. I had to dock two of my boats 
even though there was plenty of shrimp to catch because it was just too 
expensive to maintain and operate them. Many of my fellow shrimpers had 
their boats tied up too, waiting for prices to increase to pre-dumped 
levels.
    Trade relief came not a moment too soon in 2005 when the ITC found 
that the domestic shrimp industry was materially injured by dumped 
imports and Commerce issued final antidumping duty orders.
    The antidumping duties have provided some measure of trade relief 
for our industry, enough for us to begin the recovery process. In 2006, 
the SSA secured the distribution of over $102 million of Byrd Amendment 
funds to aid in their recovery efforts. More than anything else, fair 
trade relief has given us hope, and hope is a good thing. It has 
allowed the domestic industry to look forward to the future and plan 
for better things.
    We do not want to stop free trade nor do we want special treatment, 
we just want a fair deal. In a level playing field, there is no 
stopping the hard-work and dedication of U.S. shrimp fishermen. What we 
cannot effectively compete against is the blatant disregard of fair 
trade principles. American shrimpers are being consistently undermined 
by foreign producers who have targeted the United States as a literal 
dumping ground for shrimp imports. A number of countries that export 
shrimp to the United States have national policies that encourage and 
subsidize production, far in excess of local or international demand. 
This overestimated production further encourages dumping on the United 
States. By strong-arming their way into the U.S. market, foreign shrimp 
producers have sacrificed the environment, workers' rights and the food 
safety of imported shrimp for artificially low prices.
    The recovery efforts of the U.S. shrimp industry are just one 
example of how fair and effective trade laws are an essential last line 
of defense against the harm caused by unfair trade. H.R. 2714 would 
ensure that these laws are not weakened by the erroneous opinions of 
the WTO Appellate Body, Commerce, and U.S. judges. Two provisions of 
the bill are vitally important to domestic industries, especially the 
U.S. shrimp industry: (1) H.R. 2714 would delay the implementation of 
the WTO offset rulings until the United States has reached a negotiated 
solution and would require Commerce to reverse its decision to adopt 
offsets; and (2) H.R. 2714 would correct the Federal Circuit's flawed 
ruling in Bratsk Aluminum Smelter v. United States. I strongly urge the 
inclusion of these provisions in trade legislation currently being 
considered by the Committee.
    First, H.R. 2714 would delay the United States' implementation of 
WTO decisions that have found the United States' long-standing practice 
of not offsetting dumped sales with non-dumped sales to be inconsistent 
with the WTO Antidumping Agreement. The United States and many other 
WTO Members do not use offsets because it provides the most accurate 
measure of the margin of dumping. To require offsets would be like a 
death knell for domestic industries injured by unfair trade--especially 
the U.S. shrimp industry--as dumping margins would no longer accurately 
reflect the true measure of dumping.
    This is exactly what has happened in the current antidumping case 
on shrimp imports from Ecuador. Just last week, Commerce determined 
that it is abandoning the long-standing practice of not offsetting 
dumped sales with non-dumped sales in the Ecuador proceeding. This rash 
and unreasoned decision may result in the complete revocation of the 
antidumping order on Ecuadorian shrimp imports unless the USTR decides 
not to implement Commerce's decision.
    I want to make clear to the Committee that revocation of the 
Ecuador order is not based on any change in the behavior of Ecuadorian 
exporters, but because Commerce decided to not defend the trade relief. 
Commerce's tunnel-vision response to the WTO offset rulings is 
completely unwarranted and irresponsible. U.S. law has not mandated the 
termination of the Ecuador order; Commerce is not even required to use 
a particular method to calculate dumping margins.
    We provided Commerce with several alternative calculation 
methodologies that are WTO-compliant and would have kept the Ecuador 
order in place, including suspension of the case until the issue of 
offsets has been resolved by the United States. Commerce, however, 
dismissed our arguments without consideration of its obligation to use 
``the most desirable method of implementing the findings'' of the WTO 
and to ``determine dumping margins as accurately as possible.'' While 
many options have been presented to Commerce, there is no denying that 
Commerce chose the least desirable method to implement the WTO offset 
rulings: termination of the existing antidumping order on Ecuadorian 
shrimp imports in response to an action by the WTO that the USTR has 
called illegitimate.
    There is little doubt that Ecuadorian shrimp producers are still 
dumping. Commerce issued preliminary results in the first 
administrative review six months ago, confirming that Ecuadorian 
exporters continue to dump shrimp into our country. The volume of 
imports from Ecuador has nearly doubled since 2003 while the average 
unit sales values of these imports have declined significantly.
    Not only is Commerce's knee-jerk reaction devastating to the 
domestic industry, it completely defies the United States' stance that 
not offsetting is a legitimate and lawful practice.
    The USTR has maintained that the WTO offset rulings ``did not 
result from the negotiated text of the agreement.'' During the Uruguay 
Round negotiations, a proposal to expressly require offsets was 
defeated. The current WTO Antidumping Agreement closely adheres to the 
language of prior agreements on the calculation of dumping margins and 
again makes no mention of a requirement to offset.
    The WTO offset rulings simply have no legal basis. When domestic 
industries like mine depend on the fair and accurate provision of trade 
relief, it is wrong for the WTO to prohibit long-standing trade remedy 
practices that are allowed under both the text of the WTO Antidumping 
Agreement and the common understanding of the WTO Members. As the USTR 
stated, a ``prohibition of zeroing, or a requirement to provide offsets 
for non-dumped transactions, simply cannot be found in the text of the 
AD Agreement.''
    Just a few weeks ago, the United States again emphasized the 
illegitimacy of the WTO's offset rulings. The USTR stressed to the 
other WTO Members that the United States would not agree to the WTO 
Doha Round negotiations unless the issue of offsets was addressed. 
Given the U.S. position that the WTO offset rulings should be 
overturned by the WTO Members, the USTR would be making an inconsistent 
and irresponsible decision to direct Commerce to revoke the antidumping 
order on Ecuadorian shrimp. In your consultations with the USTR 
regarding this case, I urge the Committee to make clear to the USTR 
that such inconsistencies will not be allowed.
    Until and unless the United States reaches a negotiated solution to 
offsets, H.R. 2714 will ensure that Commerce will not be able to 
implement the WTO's erroneous offset rulings. In the meantime, if the 
USTR tries to speed up the implementation of Commerce's flawed decision 
or tries to dodge its statutory obligation to consult meaningfully with 
Congress, the Committee should strongly oppose the termination of the 
Ecuador order. I urge Congress to provide the trade relief due to 
domestic shrimp fishermen that Commerce has wrongfully refused to 
grant.
    Second, H.R. 2714 will ensure that the requirements imposed by the 
Bratsk decision will never be put in place. In Bratsk, the Federal 
Circuit held that the ITC must determine whether non-subject imports 
would replace the investigated imports and whether a potential order 
would actually provide relief for the domestic industry. Essentially, 
the Bratsk decision asks the ITC to channel its psychic abilities to 
see into the future of the U.S. market and the future performance of 
foreign producers not even subject to the investigation. The ITC would 
have no data on which they could base their decision.
    The Federal Circuit's requirements create an impossible hurdle for 
the ITC to determine injury. The court has so confused the purpose and 
language of our Nation's trade remedy laws that only the intervention 
of Congress will be able to rectify this wrong. The purpose of our 
Nation's fair trade laws is to ensure a level playing field, not to 
drive out imports. The antidumping duties imposed on certain shrimp 
imports have not caused those foreign producers to exit the U.S. 
market. In fact, in the Ecuador case, Ecuadorian shrimp imports have 
increased significantly since antidumping duties were levied. The 
Federal Circuit was just plain wrong to force the ITC to determine 
whether there would be a void to fill when duties are levied on subject 
imports.
    Congress has never required the ITC to consider any of the factors 
identified by the Federal Circuit. The court strayed from the letter of 
the law and inserted new requirements that would be devastating for 
domestic industries trying to prove that they have been injured by 
unfairly traded imports. The standard of the law is clear and the ITC 
does not--and should not--play in the hypothetical. H.R. 2714 would 
ensure that the additional requirements imposed by the Federal Circuit 
are disregarded.
    Finally, I would like to point your attention to S. 364, the 
``Strengthening America's Trade Laws Act of 2007,'' a bill that was 
introduced by Senator Rockefeller. I strongly support Senator 
Rockefeller's efforts to further strengthen our Nation's fair trade 
laws and would especially like to discuss the provision of S. 364, 
which would require Congressional approval of regulatory action 
relating to adverse WTO rulings. The bill would require Congress to 
pre-approve any proposed changes to U.S. laws and long-standing 
practices that are meant to comply with WTO decisions. I understand 
that the requirement is retroactive for cases such as the WTO offset 
rulings.
    If our elected representatives had veto power over Commerce's 
decision to change its long-standing practice of not offsetting dumped 
sales with non-dumped sales, I believe that there is no way that the 
antidumping order on Ecuadorian shrimp imports would be revoked. Having 
respect for our Nation's fair trade laws, Congress would ensure that 
prior practice be allowed to continue until a negotiated solution is 
reached and that domestic industries be provided with the trade relief 
they deserve.
    The trade legislation currently being considered by the Committee 
would only benefit from the inclusion of the provisions of H.R. 2714 
and S. 364.
    Thank you for inviting me to testify today. I am happy to respond 
to any questions the Members of the Committee may have.

                                 

    Chairman LEVIN. Thank you very much. Mr. West.

STATEMENT OF SKIP WEST, PRESIDENT, MAXSA INNOVATIONS, ON BEHALF 
 OF CONSUMER ELECTRONICS ASSOCIATION, FAIRFAX STATION, VIRGINIA

    Mr. WEST. Good morning, Mr. Chairman, Members of 
Subcommittee. I am not a lawyer or a trade policy expert. My 
name is Skip West, and I am president of MAXSA Innovations, a 
small Virginia-based company that develops and markets a 
diverse range of technology products. These products include 
solar-powered outdoor security lights and other solar-powered 
products, electronic candles, specialized lights and heated 
travel blankets to name just a few.
    MAXSA Innovations is one of more than 2,100 corporate 
Members of the Consumer Electronics Association, the preeminent 
trade association from my industry. Together, CEA Member firms 
account for $140 billion in annual sales.
    Thank you for the opportunity to share my perspective to 
this valuable debate. I hope any observation will be useful to 
the Subcommittee as you consider legislation that could 
significantly affect the U.S.-China trading relationship and, 
therefore, the health of my industry. I recognize that there 
are concerns about certain aspects of this trading 
relationship; it is large, complex and bound to cause some 
friction. But there are also important benefits from U.S.-China 
trade to my industry and to the American consumers who buy our 
products.
    The U.S. consumer electronics industry is subject to 
unusual pressures. It is intensely competitive and subject to 
extraordinary price sensitivity. While we must continually find 
new ways of controlling costs, the American consumer gets 
constant innovation, an ever-widening selection of products and 
the best prices possible. In other words, constantly improving 
products with more functionality and often with lower prices. 
Trade with China is a key ingredient in bringing those benefits 
to the U.S. consumers, but it is not just the American consumer 
who benefits from this trade with China; U.S. workers do as 
well.
    The U.S. Consumer Electronics Industry is part of a global 
network of production that actually allows many U.S. electronic 
companies to keep a strong manufacturing presence in the United 
States. The global network allows U.S. producers to concentrate 
on the higher value, higher technology products where American 
industry retains a competitive advantage. Indeed, for U.S. 
firms to be competitive in the global economy, they must remain 
at the top of the value chain.
    While production with lower-wage and lesser-skilled 
employees may be shifting overseas, the United States continues 
to be the leader in design, R&D, marketing and high-technology 
production. This shift to higher-value production in the U.S. 
supports high-skilled and well-paid jobs here. In fact, 
consumer electronics manufacturing wages in the United States 
average 50 percent higher than manufacturing wages overall. 
Many of these valuable U.S. jobs depend on exports.
    Further, consumer electronic imports from China directly 
support thousands of good jobs across the United States, 
including jobs in R&D, marketing, distribution and after-sale 
support. Research shows that every single U.S. State and even 
the District of Columbia is affected positively in terms of the 
net employment resulting from importation of Chinese-origin 
consumer electronics.
    In addition, the substantial volume of employer consumer 
electronics products and components is in large part a 
reflection of U.S. investment abroad and foreign assembly of 
U.S. made and designed high-value components. CEA has played a 
major role in promoting these global relationships to the 
benefit of our U.S. companies. For example, CEA is a producer 
of the International Consumer Electronic Show, the largest 
annual consumer technology trade show. Notably, participation 
of Chinese attendees has increased with each successive show. 
Moreover CEA is the exclusive U.S. sponsor of the China 
International Consumer Electronic show, CEA China's largest 
exhibition of consumer electronics. Our involvement in CEA 
provides exhibitors and attendees with new international 
business opportunities and allows CEA to promote our flag ship 
trade show to an international CEA to an international 
audience.
    Finally, I want to express a personal concern as an owner 
of a small consumer electronics firm; the imposition of anti-
dumping or countervailing duties on finished products or 
components could render these products uncompetitive even in 
the absence of anti-dumping or countervailing duties, we are 
experiencing higher costs for our Chinese imports as China's 
currency appreciates in value, and China removes export 
incentives.
    My other fear is that if legislation passes that is 
inconsistent with our international trade obligations under the 
WTO, the result may be retaliatory measures by China or other 
countries against our exports. Also, if such legislation is 
passed, it is the U.S. consumer who will suffer higher prices, 
less innovation and potential supply chain disruption and the 
flow of goods. Thank you again for your time today and allowing 
us to share our perspective.
    [The prepared statement of Mr. West follows:]
  Statement of Skip West, President, MAXSA, Innovations, on behalf of
      Consumer Electronics Association, Fairfax Station, Virginia
    Good morning Mr. Chairman and Members of the Subcommittee. My name 
is Skip West, and I am the President of MAXSA Innovations, a small 
Virginia-based company that develops and markets a diverse range of 
consumer electronics products. These products include solar-powered 
outdoor security lights and other solar-powered products, electronic 
candles, specialized lights, and heated travel blankets, to name just a 
few. MAXSA Innovations is one of more than 2,100 corporate members of 
the Consumer Electronics Association, the preeminent trade association 
for my industry. Together, CEA member firms account for $140 billion in 
annual sales.
    Today, I would like to share with you my perspective about the 
critical role of U.S.-China trade in ensuring the continued growth of a 
vibrant U.S. consumer electronics manufacturing sector.
    I hope my observations will be useful to the Subcommittee as you 
consider legislation that could significantly affect the U.S.-China 
trading relationship--and therefore the health of my industry. I 
recognize that there are concerns about certain aspects of this trading 
relationship; it is large and complex, and bound to cause some 
friction. But there are also important benefits from U.S.-China trade 
to my industry, which accrue to our workers and the consumers who buy 
our products. These benefits are often overlooked in the trade debate.
    The U.S. consumer electronics industry is subject to unusual 
pressures: it is intensively competitive, and subject to extraordinary 
price sensitivity. In addition, we face ever-shortening product life 
cycles, heightened time-to-market expectations, and the need to 
maintain strong brand awareness and company reputations. These factors 
are challenges for our industry, but bring incredible benefits to our 
customers.
    While we must continually find new ways of controlling costs, the 
American consumer gets constant innovation, an ever-widening selection 
of products, and the best prices possible--in other words, constantly 
improving products with more functionality, and often with lower 
prices. Trade with China is a key ingredient in bringing these benefits 
to the U.S. consumer.
    But it's not just the American consumer who benefits from this 
trade with China. U.S. workers do as well. I'd like to share a few 
findings from a recent Consumer Electronics Association study to show 
why this is so.
    First, the U.S. consumer electronics industry is part of a global 
network of production that actually allows many U.S. electronics 
companies to keep a strong manufacturing presence in the United States. 
This global network allows U.S. producers to concentrate on the higher-
value, high-technology products where the American industry retains a 
competitive advantage. Indeed, for U.S. firms to remain competitive in 
the global economy, they must remain at the top of the value chain. 
While production with lower-wage and lesser-skilled employees may be 
shifting overseas, the United States continues to be the leader in 
design, R&D, marketing, and high-technology production. This is evident 
in several sectors, such as the market for computers, peripherals, and 
parts. U.S. production of these products totaled $88.7 billion in 2005.
    This shift to higher value production in the United States supports 
high-skilled- and well-paid-jobs here at home. In fact, consumer 
electronics manufacturing wages in the United States average fifty 
percent higher than manufacturing wages overall. Many of these valuable 
U.S. jobs depend on exports, and trade with China helps drive this 
trend.
    Further, consumer electronics imports from China directly support 
thousands of good jobs across the United States--including jobs in R&D, 
marketing, distribution, and after-sales support. Research shows that 
every single U.S. state--and even the District of Columbia--is affected 
positively in terms of the net employment resulting from the 
importation of Chinese-origin consumer electronics.
    In addition, the substantial volume of imported consumer 
electronics products and components is in large part a reflection of 
U.S. investment abroad and foreign assembly of U.S.-made and designed, 
high-value components. This is particularly evident in the 
semiconductor industry, in which the U.S. remains a global leader. 
Trade statistics alone do not capture these complex global 
relationships, which are vital to the U.S. consumer electronics 
industry. In fact, CEA has played a major role in promoting these 
global relationships, to the benefit of our U.S. companies. For 
example, CEA is the producer of the International Consumer Electronics 
Show, the largest annual consumer technology trade show. Notably, 
participation of Chinese attendees has increased with each successive 
show. Moreover, CEA is also the exclusive U.S. sponsor of the China 
International Consumer Electronics Show--``SINOCES,'' China's largest 
exhibition of consumer electronics. Our involvement in SINOCES provides 
exhibitors and attendees with new international business opportunities 
and allows CEA to promote our flagship tradeshow, the International 
CES, to an international audience.
    These points are discussed in great detail in the Consumer 
Electronics Association's recent study, ``Role of China in 
Competitiveness of the U.S. Consumer Electronics Industry.'' I believe 
this study would be a valuable tool for the Subcommittee to use as it 
weighs the China trade bills before it.
    Finally, I want to express a personal concern as the owner of a 
small consumer electronics firm. While U.S. trade remedy laws play an 
important role in redressing unfair trade practices like dumping and 
illegal subsidies, such measures can also inadvertently punish U.S. 
manufacturers which resell foreign-sourced products or incorporate them 
into products manufactured in the United States. The imposition of 
antidumping or countervailing duties on finished products, 
semiconductors, batteries, or other components could render those 
products or downstream products produced or sold in the United States 
uncompetitive. From the perspective of my small company, even in the 
absence of antidumping or countervailing duties, we are experiencing 
higher costs for our Chinese imports as China's currency appreciates in 
value and China removes export incentives.
    My other fear is that, if legislation passes that is inconsistent 
with our international trade obligations under the WTO, the result may 
be retaliatory measures by China or other countries against our 
exports. U.S. exports of consumer electronics goods, including to 
China, are currently increasing. On a global basis, CEA member company 
exports rose from just over $3 billion in 2004 to nearly $4 billion in 
2006. Our hope is that this bright spot in the U.S. trade balance will 
not be offset by the passage of new U.S. trade laws that end up 
chilling high-value U.S. electronics exports. More importantly, if such 
legislation is passed, it is the U.S. consumer who will suffer higher 
prices, less innovation, and potential supply chain disruption in the 
flow of goods.
    Thank you for your time today. I would welcome any questions from 
the Subcommittee.

                                 

    Chairman LEVIN. Thank you. Mr. Hartquist.
    Two Skips sitting next to each other.

 STATEMENT OF DAVID A. HARTQUIST, KELLEY DRYE & WARREN LLP, ON 
             BEHALF OF THE CHINA CURRENCY COALITION

    Mr. HARTQUIST. Thank you, Mr. Chairman, for allowing me to 
speak today on behalf of the China Currency Coalition about an 
issue that we have been working on for about 3 years. We are 
just delighted that the issue has reached this level of 
interest in the Committee and on the Senate side as well. Mr. 
Hunter and Mr. Ryan laid out in their testimony the substantive 
issues related to their legislation. My job is to present the 
case that the Ryan-Hunter bill is WTO legal.
    I would like to make three main points. First, the health 
of the international trading system is intertwined and 
dependent upon orderly exchange rates and freedom and exchange 
transactions. In other words, tariff and non-tariff barriers 
cannot effectively be lowered and successfully facilitate 
international trade if companies engage in destabilizing 
competitive currency depreciation. This lesson was hammered 
home during the period between the two wars in the last 
century. The framers of the IMF and the GATT recognized that 
international trade and investment are badly damaged when 
countries engage in undervaluation of their currencies and 
similar mercantilist exchange measures.
    Second, as my written statement indicates in more detail, 
both the IMF's Article of Agreement and the GATT contain a 
number of provisions designed to shore up the monetary base 
that is essential for international trade and investment. These 
sections recognize that currency action is hybrid in nature--
that is a term I will use repeatedly--hybrid in nature, with 
both monetary and trade aspects and is to be dealt with as such 
in a complimentary fashion by the IMF and World Trade 
Organization.
    More particularly, under Article 6 of the GATT, 
governmental practices that directly or indirectly depreciate a 
country's currency can be offset by countervailing duties or as 
a form of dumping that may be offset by dumping duties. The 
proprietary of these trade actions is reinforced by the 
definition in the WTO subsidy agreement, the Agreement on 
Subsidy and Countervailing Measures--the criteria for export 
subsidies and by the requirement in the WTO's anti-dumping 
agreement that dumping be measured based upon a fair comparison 
between the foreign exporters' normal value and the U.S. price. 
While the issue would be one of first impression and dispute 
settlement in the WTO, there are solid grounds for the position 
that injurious imports whose U.S. prices are subsidized by an 
under-valued, fundamentally misaligned currency can be subject 
to countervailing or anti-dumping duties in a WTO-consistent 
matter.
    Third and lastly, the right balance needs to be struck in 
addressing this hybrid problem. Under GATT Article 15, exchange 
action is supposed not to frustrate the intent of the GATT, and 
trade action is not to frustrate the intent of the IMF Articles 
of Agreement. Depreciation of currencies is exchange action. 
Not only is it contrary to the IMF's Articles of Agreement, but 
it also runs counter to the GATT trade disciplines against 
subsidies and dumping.
    Moreover, existing international monetary rules are too 
weak to compel any currency manipulator to change its policies 
before it wants to do so. We've seen that in spades with the 
IMF and China. The mercantilistic advantages are so powerful 
that countries are in no rush to give them it up.
    On parallel tracks, the Treasury Department should pursue 
their negotiations, as they testified today, to encourage a 
country that is not upholding its international monetary 
obligations to reform its behavior. The Commerce Department 
should offset injurious imports that have been subsidized or 
dumped by means of governmental depreciation of the currency.
    We think that H.R. 2942 strikes the right balance in this 
regard. In contrast, the Finance Committee's bill, S. 1607, 
which came out of markup very recently, we think does not 
strike the right balance. I have a slide that I was going to 
present, but I understand the equipment was moved to the other 
room very efficiently, Mr. Chairman. But you have copies of it 
which shows hurdles substantive and time hurdles that must be 
approved, must be passed under the Senate bill in order for 
relief to be provided. In short, we think those hurdles should 
be lowered or removed, and we much prefer the approach the 
Ryan-Hunter bill has taken.
    Thank you for the opportunity to testify before you today.
    [The prepared statement of Mr. Hartquist follows:]
    Chairman LEVIN. Thank you very much.
    Statement of Skip Hartquist, Partner, Kelley Drye & Warren LLP,
               on behalf of the China Currency Coalition
    Good morning. Thank you for inviting me to participate in this 
hearing as counsel to the China Currency Coalition (``CCC''). The CCC 
consists of U.S. industry, agriculture, and labor organizations, and 
its purpose is to support the economy and security of the United States 
by working toward and achieving as promptly as possible a commercially 
realistic revaluation of China's undervalued yuan. The China Currency 
Coalition estimates that the yuan continues to be undervalued vis-a-vis 
the dollar by 40 percent or more.
    As requested, I will focus my comments today on the question of 
whether a currency that is fundamentally misaligned is actionable as a 
trade measure under the agreements of the World Trade Organization 
(``WTO''). The CCC believes that it is actionable. More specifically, 
in the CCC's view undervaluation of a fundamentally misaligned currency 
constitutes a countervailable prohibited export subsidy within the 
meaning of the General Agreement on Tariffs and Trade (``GATT'') and 
the Agreement on Subsidies and Countervailing Measures (``SCM 
Agreement''). Further, a currency's fundamental misalignment is a 
factor for which an adjustment should be made in the calculation of 
dumping margins under the GATT and the WTO's Antidumping Agreement.
    In addressing these matters, I wish to submit for consideration two 
basic points with reference to H.R. 2942, The Currency Reform for Fair 
Trade Act of 2007, which has been cosponsored by Congressmen Tim Ryan 
and Duncan Hunter. The CCC very much appreciates their bipartisan 
leadership on this issue over the last several years.
    The centerpiece of H.R. 2942 provides that injurious imports into 
the United States from any country of products that are undervalued due 
to the exporting country's fundamental and actionable misalignment of 
its currency can have that unfair price advantage offset by means of 
either countervailing or antidumping duties. While no one can know with 
certainty what the outcome of dispute settlement at the WTO would be on 
these matters of first impression, the China Currency Coalition 
believes that reliance upon these remedies and imposition of these 
duties should be found to be consistent with the WTO's relevant 
provisions.
I. Fundamental and Actionable Misalignment of Currencies Is Both a 
        Monetary Action and a Trade Action and Was Recognized As Such 
        By the Framers of the International Institutions and Rules That 
        Were Created to Regulate the Post-World War II Global Monetary 
        and Trading System
    The first point I would like to raise is that, from the outset of 
the drafting of the GATT and the Articles of Agreement of the 
International Monetary Fund (``IMF'') during and immediately after 
World War II, the international community was acutely aware that 
exchange action can distort and damage international trade. In 
reviewing the important issue of undervalued currencies, therefore, it 
is helpful to recall the perspective of those who were involved in 
crafting the post-war international monetary and trading system. 
Weighing very much on their minds were the ordeal of the Great 
Depression in the 1930s, the disruption to international trade caused 
by competitive currency depreciation and exchange controls, and the 
need for orderly exchange arrangements to restore and facilitate 
international trade.
    The integral nature and relationship of monetary matters and 
international trade were perhaps best captured by Harry Dexter White, 
the primary architect for the United States of the International 
Monetary Fund along with John Maynard Keynes for Great Britain. Writing 
in an article for ``Foreign Affairs'' in the 1944-45 issue, White 
observed that the lowering of barriers to international trade, ``. . . 
cannot be done until there is assurance of orderly exchange rates and 
freedom in exchange transactions for trade purposes A depreciation in 
exchange rates is an alternative method of increasing tariff rates; and 
exchange restriction is an alternative method of applying import 
quotas.'' H.D. White, ``The Monetary Fund: Some Criticisms Examined,'' 
23 Foreign Affairs 195, 208 (1944-45).
    Expanding on this central bond between international trade and 
stable and strong exchange rates, as opposed to rigid and brittle 
exchange rates, White remarked,
    The world needs assurance that whatever changes are made in 
exchange rates will be made solely for the purpose of correcting a 
balance of payments which cannot be satisfactorily adjusted in any 
other way. The world needs assurance that exchange depreciation will 
not be used as a device for obtaining competitive advantage in 
international trade; for such exchange depreciation is never a real 
remedy. It inevitably leads to counter measures, and the ultimate 
effect is to reduce the aggregate volume of trade. This is precisely 
what happened in the period of the 1930's when competitive exchange 
depreciation brought wider use of import quotas, exchange controls and 
similar restrictive devices.
    H.D. White, ``The Monetary Fund: Some Criticisms Examined,'' 23 
Foreign Affairs 195, 199 (1944-45).
    While White wrote at a time when the world was still on the gold 
standard and international flows of private capital were restricted, 
the critical interrelationship of which he spoke remains just as vital 
today as then and, if anything, is more so. Unless exchange rates 
reflect the market's fundamentals of supply and demand, mutually 
acceptable reductions in tariff and non-tariff barriers will likely not 
be successfully negotiated and, even if agreed to by the parties, will 
be undercut and negated to the extent that governmental actions 
insulate the setting of exchange rates from market forces and result in 
currencies that are fundamentally misaligned. It is consequently of the 
utmost importance to the international trading system that exchange 
rates be orderly and market-oriented.
    With this hybrid nature of exchange rates in mind, the IMF's 
Articles of Agreement considered the monetary side of this issue in 
various sections, including Article I(iii) (noting that the IMF's 
purposes include promotion of exchange stability, maintenance of 
orderly exchange arrangements among members, and avoidance of 
competitive exchange depreciation), Article IV(1)(ii) (stressing that 
each member of the IMF is obligated to promote stability by fostering 
orderly economic and financial conditions and a monetary system that 
does not tend to produce erratic disruptions), and Article IV(1)(iii) 
(obligating each member of the IMF to avoid manipulating exchange rates 
or the international monetary system in order to prevent effective 
balance of payments adjustment or to gain an unfair competitive 
advantage over other members).
    As turned to next, the drafters of the GATT also addressed the 
hybrid nature of exchange rates from the trade side of things.
II. Under the WTO's Agreements, Fundamental and Actionable Misalignment 
        of An Undervalued Currency Can Be Treated Either As a 
        Prohibited Export Subsidy or As a Form of Dumping
    The second point I would like to emphasize today is that 
consideration of an undervalued currency's misalignment likewise has a 
long history as an actionable trade action under the GATT. In July 
1947, the Australian delegate in Geneva voiced concern that multiple 
currency practices in certain circumstances could constitute an export 
subsidy and alternatively could amount to a partial depreciation of a 
country's currency that should be dealt with as a dumping measure. See 
Second Session of the Preparatory Committee of the United Nations 
Conference on Trade and Employment, Verbatim Report, E/PC/T/A/PV/32 at 
2-3 (July 23, 1947).
    Article VI of the GATT accordingly was amended. GATT Ad Article VI 
at paragraphs 2 and 3, item 2 reads,
    Multiple currency practices can in certain circumstances constitute 
a subsidy to exports which may be met by countervailing duties under 
paragraph 3 [of GATT Article VI regarding countervailing duties and 
subsidies] or can constitute a form of dumping by means of a partial 
depreciation of a country's currency which may be met by action under 
paragraph 2 [of GATT Article VI regarding antidumping duties and 
dumping]. By ``multiple currency practices'' is meant practices by 
governments or sanctioned by governments.
    (Bracketed material added.) As is evident from this account, 
undervalued misalignment of a currency has been seen from the earliest 
days of the GATT as a trade measure that can be countered either as an 
export subsidy or as dumping. This conclusion is reinforced by 
subsequent developments.
A. Fundamental Misalignment As a Prohibited Export Subsidy
    In both the Annex at items (b) and (j) in the GATT's 1979 Subsidies 
Code and, as carried forward in Annex I(b) and (j) of the WTO's 1994 
SCM Agreement, the illustrative list of export subsidies identified 
explicitly designates as export subsidies ``(c)urrency retention 
schemes or any similar practices which involve a bonus on exports'' and 
the provision by governments directly or indirectly of exchange risk 
programs at premium rates that are manifestly inadequate to cover the 
long-term operating costs and losses of such programs.
    Further, the 1994 SCM Agreement at Articles 1, 2, and 3, for the 
first time defined the term ``subsidy'' expressly to require (a) a 
governmental financial contribution and (b) a benefit conferred thereby 
upon the recipient of that contribution, and then added that such a 
subsidy is countervailable only if it is (c) ``specific'' (as relevant, 
contingency of the subsidy upon exportation in law or in fact), as the 
three criteria that must be shown to establish the existence of a 
prohibited countervailable export subsidy. Previously, in footnote 4 of 
the 1979 Subsidies Agreement, only the term ``countervailing duty'' was 
defined as meaning ``a special duty levied for the purpose of off-
setting any bounty or subsidy bestowed directly or indirectly upon the 
manufacture, production or export of any merchandise, as provided for 
in Article VI:3 of the General Agreement.''
    It is important to note at this juncture that the WTO's agreements 
and relevant provisions treating an undervalued, fundamentally 
misaligned currency as an export subsidy are unlike the IMF's sections 
with respect to currency manipulation in at least one significant 
regard. Whereas a finding of currency manipulation by the IMF arguably 
depends in part upon the foreign government having the intent by means 
of its currency's undervaluation to gain an unfair competitive 
advantage or to prevent effective balance of payment adjustments, there 
is no element or showing required of intent in the WTO's agreements on 
prohibited export subsidies. In particular, as long as a prohibited 
export subsidy exists under Articles 1, 2, and 3 of the WTO's SCM 
Agreement, and as long as a U.S. domestic industry can demonstrate that 
it is being materially injured or threatened by material injury by 
reason of subsidized imports, relief is warranted in the form of 
countervailing duties on subsidized imports entering the United States 
to offset the amount of subsidization.
    The question, then, is whether a currency's fundamental and 
actionable misalignment as defined in H.R. 2942 is a countervailable 
prohibited export subsidy. As noted above, under Articles 1, 2, and 3 
of the SCM Agreement, a measure must satisfy three criteria in order to 
be considered a prohibited export subsidy. In essence, there must be a 
governmental financial contribution (Article 1.1(a)(1)), a benefit must 
thereby be conferred upon the recipient (Article 1.1(b)), and such a 
subsidy must be specific by virtue of being contingent in law or in 
fact upon export performance (Articles 1.2, 2.3, and 3.1(a)). In the 
judgment of the China Currency Coalition, the yuan's enforced 
undervaluation by the Chinese government meets each of these criteria.
    In a normal export transaction, having been paid for goods sold to 
a customer in the United States, the exporter in China must transfer 
most of the U.S. dollars received to the Chinese government in return 
for yuan at the undervalued exchange rate in effect. This requirement 
is reflected in Article 9 of a Circular dated February 17, 2000, by the 
People's Bank of China and the State Administration of Foreign 
Exchange. Article 9 indicates that Chinese exporters typically must 
exchange for yuan 85 percent of the foreign currency earned on exports, 
but that ``Honorable Enterprises for Collection of Export Receipts of 
Foreign Exchange'' may retain 30 percent of the earned foreign currency 
while exchanging for yuan the balance of 70 percent of the foreign 
currency received in payment for their exports. Furthermore, Article 7 
of the Regulations of the People's Republic of China on Foreign 
Exchange Control, which were issued by the State Council on January 26, 
1996, and were amended on January 14, 1997, mandates that ``(f)oreign 
currency is prohibited for circulation and shall not be quoted for 
pricing or settlement in the territory of the People's Republic of 
China.''
    In the sequence of the conversion into yuan of foreign exchange 
earned from exports, the Chinese government first provides a financial 
contribution to the exporter by means of a direct transfer of funds 
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. For 
each U.S. dollar exchanged at the current rate, the Chinese exporter 
receives in return approximately 7.5 yuan. This money is no less a 
direct transfer of funds than an outright governmental grant would be.
    Second, a benefit is conferred by this governmental financial 
contribution upon the recipient that is equal to the difference between 
what the yuan would be worth if its value were set by the market and 
its artificially low value as the result of China's undervaluation of 
the yuan. With the yuan undervalued by approximately forty percent, 
therefore, for each U.S. dollar earned by the sale of goods to the 
United States the Chinese exporter will receive approximately 7.5 yuan 
at the current rate rather than the 4.5 yuan that the CCC believes 
would be the market-driven rate of exchange. As this illustration 
demonstrates, the exporter in China is substantially ``better off'' as 
the result of being given more yuan than if there were no 
undervaluation.
    Third, and lastly, this subsidy is contingent upon export 
performance. Only after the exporter has been paid in U.S. dollars for 
the goods that have been exported to the United States is the exporter 
required and able to convert those proceeds into yuan.
    The setting forth in these straightforward terms of why the yuan's 
undervaluation should be seen as a countervailable prohibited export 
subsidy is not intended to overlook various underlying and, in some 
instances, arguably contrary points that add complexity to the 
analysis. At least a few should be mentioned at this stage, therefore, 
and there are perhaps others that might be advanced. Also importantly, 
due to incomplete transparency by China, not all facts and details are 
known about exactly how China's system functions. At the same time, 
however, in the China Currency Coalition's opinion the evidence that is 
available is more than adequate to support the conclusion that the 
yuan's enforced undervaluation is a countervailable prohibited export 
subsidy as noted in GATT Ad Article VI, at paragraphs 2 and 3, item 2, 
and in Articles 1, 2, and 3 and Annex I(b) and (j) of the SCM 
Agreement.
    For instance, with respect to the criterion that there be a 
governmental financial contribution under Article 1.1(a)(1) of the SCM 
Agreement, such a finding can rest on one or more of several grounds. 
As suggested above, the Chinese government's exchange of yuan in return 
for U.S. dollars can properly be viewed as ``a government practice 
(that) involves a direct transfer of funds,'' in line with Article 
1.1(a)(1)(i). The yuan's undervaluation might also be considered a 
governmental provision of services under Article 1.1(a)(1)(iii), 
inasmuch as the Chinese government both exchanges the yuan for U.S. 
dollars and then ``sterilizes'' the issued yuan in order to avoid 
inflation and loss of value by the yuan within China. These services by 
China are financial contributions integral to the yuan's undervaluation 
relative to the dollar. Further, to the extent that the Chinese 
government entrusts or directs private bodies to conduct the exchanges 
and ``sterilizations'' of yuan, those activities likewise can 
reasonably be seen as governmental financial contributions under 
Article 1.1(a)(1)(iv).
    Also on the criterion of a governmental financial contribution, 
there are some who urge that a government's undervaluation of its 
currency constitutes a general infrastructural measure that cannot 
properly be deemed a subsidy. As the U.S. Department of Commerce 
indicated in its final rule in 1998 implementing the countervailing 
duty sections of the Uruguay Round Agreements Act, however, 
governmental financial contributions to the general infrastructure 
include the provision of such services and items as highways and 
bridges, schools, healthcare facilities, sewage systems, port 
facilities, libraries, and police protection that are for the public 
good and broad social welfare of a country, region, state, or 
municipality and that are available to all citizens or to all members 
of the public. As a macroeconomic policy, exchange-rate misalignment is 
a governmental financial contribution that does not directly build up a 
community's basic, functional features of the kinds just recounted, and 
is accessible to just those persons who are in a position to deal with 
foreign currencies.
    Similarly as to the requirement that there must be a governmental 
financial contribution for a subsidy to exist, the question might arise 
as to whether such a contribution can occur if the government does not 
bear some cost. There are, however, costs to China's government due to 
its undervaluation of the yuan, including the costs of printing all of 
the yuan required for the conversion of the U.S. dollars and other 
foreign currencies generated by the exports from China and also the 
costs incurred by China's government in sterilizing those yuan.
    In any event, ``An evaluation of the existence of a financial 
contribution involves consideration of the nature of the transaction 
through which something of economic value is transferred by a 
government. A wide range of transactions falls within the meaning of 
`financial contribution' in Article 1.1(a)(1) [of the SCM Agreement].'' 
United States--Final Countervailing Duty Determination with Respect to 
Certain Softwood Lumber from Canada, WT/DS257/AB/R, para. 52 (Jan. 19, 
2004). Moreover, a governmental transfer of economic resources, to be a 
financial contribution, does not have to involve a cost to the 
government or a charge on the public account. United States--Measures 
Treating Exports Restraints as Subsidies, WT/DS194/R, para. 8.73 and 
n.167 (June 29, 2001).
    With respect to the SCM Agreement's second prerequisite for a 
subsidy at Article 1.1(b) that there must be a benefit conferred by the 
governmental financial contribution before a subsidy can be 
established, there is a widespread, although not unanimous, consensus 
that the yuan is undervalued, but opinions vary as to how to measure 
the undervaluation. To the extent there is no private exchange market 
in China that can serve as a trustworthy benchmark to determine the 
amount of the yuan's undervaluation, the CCC believes that a 
methodology should be employed for this purpose that is objective and 
consistent with widely recognized macroeconomic theory and that 
incorporates governmentally published and other publicly available and 
reliable data.
    Toward this end, H.R. 2942 sets forth a methodology that in the 
CCC's judgment is balanced and fairly reflects conventional economic 
thinking. More specifically, H.R. 2942 directs that a simple average be 
taken of the results of three different methodologies--first, the 
macroeconomic-balance approach, second, the reduced-form-real-exchange-
rate approach, and third, the purchasing-power-parity approach. These 
well-recognized methodologies are the standard methodologies used by 
economists, and by taking the simple average of them H.R. 2942 should 
achieve as reasonable a computation as is possible of whether 
fundamental and actionable misalignment exists and, if so, to what 
extent.
    In addition, H.R. 2942 reasonably defines ``fundamental and 
actionable misalignment'' as a differential between the prevailing real 
effective exchange rate and the equilibrium real effective exchange 
rate that has exceeded 5 percent on average for the eighteen months 
preceding the measurement of such misalignment. In this fashion, H.R. 
2942 in effect is reasonably implementing in U.S. domestic law the 
governing international law of the WTO's provisions such that only 
significant misalignment would be actionable. Put otherwise, any 
currency that is out of alignment from its equilibrium real effective 
exchange rate to that extent and for that extended period of time is 
almost certainly insulated from market forces due to governmental 
controls.
    While this means of measurement seems very reasonable on balance, a 
benchmark arrived at in this unprecedented fashion to determine the 
amount of the yuan's undervaluation admittedly would be open to 
challenge at the WTO. In cases involving Korean DRAMS and Canadian 
softwood lumber, however, the United States has been upheld in the past 
at the WTO on other first-time interpretations of the SCM Agreement. In 
the case of Korean DRAMS, the U.S. Department of Commerce was affirmed 
by the WTO in finding indirect governmental financial contributions 
through the Korean government's entrustment to private Korean banks of 
preferential loans, equity investment, and debt forgiveness for a 
Korean producer of DRAMS. United States--Countervailing Duty 
Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) 
from Korea, WT/DS296/AB/R (June 27, 2005).
    In addition, in the case of Canadian softwood lumber, the agency 
was upheld at the WTO in its reliance upon benchmarks outside the 
subsidizing government's territory to measure the benefit from 
undervalued Canadian stumpage rights. United States--Final 
Countervailing Duty Determination With Respect to Certain Softwood 
Lumber from Canada, WT/DS257/AB/R (Jan. 19, 2004).
    In the CCC's judgment, measurement of fundamental misalignment of 
the yuan by H.R. 2942's responsible methodology could similarly be 
defended and affirmed on very solid grounds in dispute settlement at 
the WTO.
    As noted earlier, the SCM Agreement's third and final criterion 
deals with whether the subsidy due to the yuan's undervaluation is 
contingent, in law or in fact, upon export performance, and so is 
``specific'' under Articles 1.2, 2.3, and 3.1(a) of the SCM Agreement 
and countervailable. In the CCC's opinion, it is evident that this 
subsidy is contingent upon and tied to actual or anticipated 
exportation or export earnings within the meaning of the SCM 
Agreement's Article 3.1(a) and n.4. Certainly the Chinese law and 
regulations mentioned previously suggest that the subsidy of the yuan's 
undervaluation is contingent upon exportation. In fact, also, it is 
evident that without exportation and payment in U.S. dollars, the 
Chinese company will not realize the subsidy.
    Another aspect as to whether this subsidy is specific and export-
contingent concerns its availability as well to persons and entities in 
China that have obtained U.S. dollars by means other than through the 
export of goods or services to the United States. On at least two 
occasions, however, in dispute settlement at the WTO (United States--
Subsidies on Upland Cotton, WT/DS267/AB/R (Mar. 3, 2005), and United 
States--Tax Treatment for ``Foreign Sales Corporations'' (Art. 21.5), 
WT/DS108/AB/RW (Jan. 14, 2002), the WTO's Appellate Body has recognized 
that the granting of a subsidy under conditions apart from exportation 
does not undercut the de facto export-contingent nature of the subsidy 
when the grant is tied to exportation. As long as it can be 
established, therefore, that there is a clear distinction between the 
eligible domestic recipients and the eligible exporters and there are 
different conditions required for each group to receive the subsidy, 
the prerequisite of specificity for a countervailable prohibited export 
subsidy should be met. Without doubt, the vast bulk of subsidies paid 
through the yuan's undervaluation is made to exporters from China.
    In summary, there is ample cause to conclude that H.R. 2942's 
provision that undervalued fundamental misalignment of a foreign 
currency very reasonably and appropriately can be viewed as a 
legitimate implementation in U.S. domestic law of the WTO's SCM 
Agreement and Ad Article VI of the GATT.
B. Fundamental Misalignment As a Dumping Adjustment
    More briefly, I will touch on why H.R. 2942's provision that 
fundamental misalignment of a foreign currency can be taken into 
account in antidumping calculations is justified under the WTO's 
Antidumping Agreement and Ad Article VI of the GATT.
    The basic points here are that since the origins of the GATT in 
1947, currency depreciation has been recognized in Ad GATT Article VI 
at paragraphs 2 and 3, item 2 as a form of dumping that can be met by 
antidumping duties, and, consistent with this view, Article 2.4 of the 
WTO's Antidumping Agreement imposes the fundamental condition that 
dumping calculations reflect ``a fair comparison'' between export price 
and normal value. This requirement has been interpreted broadly in 
dispute settlements at the WTO, including in the context of challenges 
to the practice of zeroing by the United States and other countries, 
and likely would be taken to mean that undervaluation or overvaluation 
of a fundamentally misaligned currency should be adjusted for by 
reducing or raising U.S. price, respectively, in the interest of 
achieving ``a fair comparison.'' These adjustments are what H.R. 2942 
contemplates and should be fully consistent with the obligations of the 
United States at the WTO.

                                 
    Thank you for inviting me to appear before you today. I 
will be glad to answer any questions that you have.
    Attachment
Members of the
China Currency Coalition

      The IUC AFL-CIO
      American Iron and Steel Institute
      Chicagoland Circuit Association
      The Committee on Pipe and Tube Imports
      The Copper & Brass Fabricators Council, Inc.
      EXEL Industrial
      Forging Industry Association
      Graphics Communications International Union (GCIU)
      The Industrial Union Council (composed of Bakery, 
Confectionary, Tobacco Workers and Grain Millers International Union 
(BCTGM))
      International Union of Electrical Workers/Communication 
Workers of America (IUE/CWA)
      International Association of Machinists (IAM)
      International Brotherhood of Boilermakers (IBB)
      International Brotherhood of Electrical Workers (IBEW)
      International Brotherhood of Teamsters (IBT)
      Paper Allied-Industrial Chemical & Energy Workers 
International Union (PACE)
      Manufacturers for Fair Trade
      Metal Treating Institute
      Metals Service Center Institute
      National Council of Textile Organizations
      National Tooling and Machining Association
      Nucor Corporation
      Precision Machined Products Association
      Precision Metalforming Association
      Rescue American Jobs
      Sheet Metal Workers International Association
      Society of the Plastics Industry
      Specialty Steel Industry of North America
      Spring Manufacturers Institute
      Steel Dynamics
      Steel Manufacturers Association
      Tooling & Manufacturing Association
      U.S. Business and Industry Council
      United Automobile Workers (UAW)
      United Food and Commercial Workers (UFCW)
      United Mine Workers of America (UMWA)
      United States Business & Industry Council
      United Steelworkers of America (USWA)
      Union of Needletrades Industrial and Textile Employees 
(UNITE)
      Vanadium Producers & Reclaimers Association
      Wood Machinery Manufacturers of America

                                 

    Mr. Leibowitz.

STATEMENT OF LEWIS E. LEIBOWITZ, PARTNER, HOGAN & HARTSON LLP, 
    ON BEHALF OF CONSUMING INDUSTRIES TRADE ACTION COALITION

    Mr. LEIBOWITZ. Thank you very much for the opportunity to 
appear before you today. I am Lewis Leibowitz, a partner at the 
law firm of Hogan & Hartson in Washington and general counsel 
of the Consuming Industries Trade Action Coalition or CITAC. I 
truly appreciate the opportunity to participate in today's very 
important hearing.
    On behalf of consuming industry, consuming industries are 
manufacturers, distributors and retailers that use globally 
traded products in their businesses. Most are small- or medium-
sized companies. They usually can't afford to file trade cases. 
There are exceptions, of course, including the gentleman to my 
right, but that is a general rule. Collectively, they employ 
millions of workers in the United States. In steel, for 
example, the ratio of workers in steel-consuming manufacturing 
companies to steel-producing workers is over 60-1. Every State 
has a massive surplus of steel-using manufacturing workers to 
steelworkers.
    America's consuming industries care about anti-dumping and 
countervailing duty laws and generally support them, but these 
laws, which benefit a few, tax the vast majority of U.S. 
manufacturers. These laws are currently unfair to consuming 
industries because these industries are excluded from 
meaningful participation in trade-remedy proceedings. As Mr. 
Knollenberg stated this morning very eloquently, this is not 
the American way.
    For consuming industries, industrial user standing, an end 
of the practice of zeroing, and reform of the retrospective 
duty collective system, which hurts down stream industries, are 
essential changes to address the unfairness in these laws.
    Concerning China trade, which is the main subject of 
today's hearing, we ask the Subcommittee first to do no harm, 
but the trade remedy changes proposed in some of these bills 
before you would do harm to the majority of American 
manufacturing companies and workers. Therefore, consuming 
industries oppose provisions that would mandate controversial 
and we believe WTO-inconsistent actions, including the 
perpetuation of zeroing and nonmarket economy treatment, 
principally for China and Vietnam, using artificial exchange 
rates in anti-dumping cases, declaring currency misalignment, 
erroneously, in our view, a countervailable subsidy, forbidding 
the ITC from considering alternative causes of injury, that's 
the Bratsk decision and doubt counting duties against imports 
from nonmarket economy countries, these will all lead to 
excessive tax increases on U.S. manufactures, and we have to 
get the tax right.
    We need trade remedy laws that consider the interest of the 
entire U.S. economy, including consumers, let me say right 
here, the zeroing decision that the Commerce Department issued 
last week did reverse the anti-dumping order with zeroing 
achieved spectacular margins of 2 to 4 percent on Ecuadorian 
shrimp exporters, and when zeroing was eliminated those margins 
fell to zero. It is hard to argue that is a catastrophic 
outcome. However, it does remove the order, and we can talk 
about that during the question period if there is time.
    Also, obviously, there are those who disagree with Mr. 
Hartquist's analysis of the countervailability of currency 
manipulation so-called as a subsidy under WTO rules, we should 
talk about that, too.
    We need these trade remedy laws, but we need to them to 
consider the interest of everyone, including consumers and 
consuming businesses. The duties imposed have to be accurate. 
They have to be determined promptly and not lead to 
uncertainty. Our current laws fail these tests. It is not 
acceptable to us to load up these laws with all these new 
ideas, which will not have the effect that I think we all want 
them to have until these fundamental inequities are changed.
    I would like to work with all of you to resolve these 
questions for the benefit of all Americans. I am very glad 
again to have had the opportunity to appear before you today. I 
look forward to a dialogue with you and any questions or 
comments you may have. Thank you very much.
    [The prepared statement of Mr. Leibowitz follows:]
     Statement of Lewis E. Leibowitz, Partner, Hogan & Hartson LLP,
        on behalf of Consuming Industries Trade Action Coalition
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    Chairman LEVIN. Thank you very much.
    Mr. Lighthizer.

STATEMENT OF ROBERT E. LIGHTHIZER, PARTNER, SKADDEN ARPS SLATE 
                       MEAGHER & FLOM LLP

    Mr. LIGHTHIZER. Good afternoon, Mr. Chairman and Members of 
the Committee. I also appreciate the opportunity to be here 
today. The crisis we are currently facing in manufacturing is, 
in my view, one of the most significant economic challenges 
this country has ever faced. Not only do trade deficits 
threaten the stability of the U.S. and global economies, but we 
are on a path that could very well lead to the loss of entire 
industries and core industrial capabilities, the very 
capabilities that are essential to our security and our 
economic leadership. Much of this crisis is the result of 
foreign, unfair trading practices, cheating, for lack of a 
better word.
    Our fair trade laws, including our anti-dumping and 
countervailing duty laws are not the most exciting topic. What 
they are, however, is often the only recourse against practices 
that would otherwise destroy U.S. industries. They are also an 
essential component of addressing the manufacturing crisis. 
Whatever else you do in terms of red tape, regulatory burden, 
tax or healthcare or other challenges facing manufacturing, it 
will all be for naught if we cannot ensure our workers and 
businesses will have a fair chance to compete in our own 
market. Unfortunately, we dangerously close to a situation 
where our fair trade rules will be affected.
    Let me briefly address some of the priority issues. First 
proposals to legislatively require application of the CVD laws 
to nonmarket economies as contained in the Davis-English bill 
makes a lot of sense and would codify the Department of 
Commerce's recent change in policy, but it is critical to enact 
a clean version of the legislation. Some of the proposal such 
as lowering anti-dumping duties by the amount of any 
countervailing duties imposed could actually make the 
legislation worse than current law and lead to less discipline 
on Chinese unfair trade. If these types of amendments are part 
of deal it would be better not to act at all.
    Second, it is important that you go further if you want to 
have a real impact on Chinese and other unfair trade. The 
situation with Chinese currency manipulation for example has 
become unsustainable. In my view, the so-called dialogue as a 
way to solve this problem has long ago lost any credibility.
    Third, we critically need to address WTO decisions that 
have baselessly gutted fair trade laws and disciplines. The 
first most important place to start is the so-called zeroing 
methodology, a vital and integral part of our anti-dumping laws 
that was struck down by the WTO, no area of WTO jurisprudence 
has received more widespread criticism or ridicule and 
deservedly so.
    The Administration itself has been harshly critical of the 
decisions, calling them devoid of legal merit and suggesting 
that the appellate body is trying to infer the intent of WTO 
Members without the benefit of textual basis in the agreements.
    I appreciate that this is a highly technical matter, but I 
ask, why is the U.S. rushing to implement WTO decisions that 
the Administration and many practitioners, even some of those 
representing mostly foreign producers have called completely 
baseless?
    When U.S. agreed to the Uruguay rounds supporters of the 
agreement loudly and repeatedly emphasized that WTO panels 
could not force us to change our laws or dictate economic 
decisions to the U.S. Congress, but is this really true if we 
feel obligated to implement every decision no matter how long 
or unjustifiable particularly where those decisions go to the 
very heart of the effectiveness of our trade laws. Congress 
should absolutely direct that these decisions not be 
implemented and that the Administration instead seek a 
negotiated solution at the WTO.
    Finally, I would say time is running out, more and more 
U.S. companies are placing their bets on the other side, 
thinking that with the current skewed rules, production abroad 
is the only viable option. More and more U.S. businesses are 
looking to benefit from unfair trade by sourcing inputs from 
abroad and attacking U.S. laws. If we don't act soon, we will 
reach a tipping point where it will be impossible to recover.
    Thank you, again, for the opportunity to be here.
    [The prepared statement of Mr. Lighthizer follows:]
              Statement of Robert E. Lighthizer, Partner,
                 Skadden Arps Slate Meagher & Flom LLP
    Good morning. It is a pleasure to be here today and to have the 
chance to testify regarding our trade laws and the challenges of unfair 
trade, including from China and many other nations.
    In my view, the question of unfair trade cannot be separated from 
the larger crisis we face in terms of American manufacturing and 
competitiveness. To be sure, the manufacturing crisis stems from 
numerous causes and presents many considerations and challenges for 
policy makers. But if we cannot ensure that our companies and workers 
are competing in a market free from dumping, subsidies, and unfair 
trade, we will ultimately not be successful in restoring health to this 
vital sector. In other words, assurance of a fair market is a necessary 
condition for addressing the manufacturing crisis.
    Our trade laws play a vital role in ensuring that the market 
works--that the gains from trade go to those who make the best 
products, compete the hardest and play by the rules, as opposed to 
those who benefit from the most government largesse or other market 
distortions. These laws are critical to well-functioning markets, but 
they also help preserve the gains from trade in another crucial way--
namely by helping to maintain support for open markets and the global 
system. Over the long run, Americans will not support a trading system 
that they feel is rigged against them or that permits foreign companies 
to violate the rules with impunity.
    It is up to Congress to establish rules that ensure fair trade and 
thereby preserve the viability and attractiveness of production and 
manufacturing in this country. It is up to Congress to ensure that 
those rules are enforced as intended and operate to truly discipline 
unfair practices. And it is up to Congress to ensure that our companies 
are not given incentives to move production abroad where the rules of 
the game are distorted to bestow unfair advantages.
    As discussed below, we are not doing the job needed to make sure 
these imperatives are met. Our laws are not as strong as they should 
be, they are daily being weakened by an international system that is 
out of control, and even the rules we have are not being enforced as 
strongly as they should be. I sincerely hope that this hearing and the 
renewed interest in Congress in these issues will help reverse this 
tide and reestablish a true commitment to fair trade in this country. 
Time is short and the time for real action is long overdue.
II. THE U.S. MANUFACTURING CRISIS AND THE TRADE LAWS
    To understand the magnitude of the crisis facing U.S. 
manufacturers--and the vital role of our fair trade disciplines--it is 
worth taking a quick look at the basic data.
    Our enormous current account deficit (Figure 1) is of course widely 
acknowledged, but the actual magnitude of the problem--and the amount 
by which it is still growing--is not always appreciated. Not long ago, 
in the early 1990's, our deficit was considered a major problem when it 
was less than $100 billion. It now stands at more than eight times that 
level with no real improvement in sight.
Figure 1
[GRAPHIC] [TIFF OMITTED] 49994A.028

    China alone maintains a surplus with the United States more than 
twice the entire current account deficit in 1991. (Figure 2) The growth 
is just staggering.
Figure 2
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    Significantly, as shown by Figure 3 below, the United States is the 
only major economy that is running a large current account deficit. We 
are in effect propping up the global economy and manufacturers in the 
rest of the world, while placing our own manufacturers at a major 
disadvantage.
Figure 3
[GRAPHIC] [TIFF OMITTED] 49994A.030

    This next figure simply graphs the current account deficit against 
major trade agreements since 1960. (Figure 4) One thing is clear: these 
agreements, and the general direction of our trade policy, have done 
nothing to ameliorate the trade deficits we are facing.
Figure 4
[GRAPHIC] [TIFF OMITTED] 49994A.031

    This is not a story about U.S. manufacturers shifting from lower-
valued products to more advanced products. In fact, as shown by Figure 
5, we have actually gone from a significant surplus position with 
regard to advanced technology, to a significant deficit today. Given 
the current skewed playing field, we are not competing successfully at 
any end of the spectrum.
Figure 5
[GRAPHIC] [TIFF OMITTED] 49994A.032

    The effects on the workforce have been staggering. While the number 
of American employed in manufacturing stabilized after the recession of 
the early 1980's and remained fairly steady for 20 years, we have now 
lost 3 million manufacturing jobs since 2000--jobs that have not 
returned despite years of economic growth. (Figure 6)
Figure 6
[GRAPHIC] [TIFF OMITTED] 49994A.033

    While the problems facing our manufacturing sector have a number of 
causes, one of the most significant is the role of foreign unfair trade 
practices and the ways in which the rules are rigged against American 
workers and companies.
    The ways in which foreign governments effectively prop up their 
industries (Figure 7) are numerous--ranging from blatant currency 
manipulation in places like China and Japan, international and foreign 
tax rules that grossly disadvantage U.S. producers, massive subsidies 
provided by foreign governments, fixed markets abroad, cartel 
arrangements, and a host of other practices that lead to dumping on 
world markets.
Figure 7
[GRAPHIC] [TIFF OMITTED] 49994A.034

    In many ways, the United States relies upon only one policy in 
response: namely, our fair trade laws. The ability to address injurious 
import surges that result from foreign market distortions has been 
critical to many core U.S. industries in the past (ranging from steel 
to semiconductors to numerous agricultural products), and has become 
increasingly important with the advent of greater and greater 
international trade flows--along with the proliferation of foreign 
practices that undermine market outcomes.
III. THE IMPORTANCE OF FAIR TRADE LAWS
    Disciplines against injurious dumping and subsidies have of course 
been embodied in international agreements since the inception of the 
General Agreement on Tariffs and Trade (``GATT'') and elaborated in 
subsequent agreements.
    These rules have been widely-accepted for decades because of the 
understanding that dumped and subsidized imports distort markets, 
disrupt normal trade patterns, and prevent optimal outcomes in terms of 
efficiency and gains from trade.\2\
---------------------------------------------------------------------------
    \2\  See generally Greg Mastel, Antidumping Laws and the U.S. 
Economy at 17-27 (1998)
---------------------------------------------------------------------------
    In this regard, foreign government subsidies not only provide an 
unfair advantage to foreign producers and create an artificial 
disadvantage for non-subsidized producers and workers--they also serve 
to disrupt the efficient allocation of resources in global markets. 
Subsidized companies produce more output than the market would 
otherwise demand, and taxpayers in subsidizing jurisdictions are 
burdened with providing the resources to support this artificial 
incentive. Subsidies also create incentives for other countries to 
follow suit in an effort to remain competitive in an increasingly 
distorted market. Our countervailing duty (``CVD'') law is the 
principal mechanism to respond to unfair and injurious foreign 
subsidies.
    Dumping has similar adverse consequences and is remedied through 
our anti-dumping (``AD'') law. In this regard, improper price 
discrimination between markets and below-cost dumping result from 
numerous forms of market distortion, including: (i) protected home 
markets that allow foreign companies to achieve artificial profits and 
monopoly rents, and help finance dumped sales in other markets; (ii) 
the desire to find an outlet for surplus production, increase market 
share, and lower costs through economies of scale; (iii) the desire to 
achieve social goals, such as high employment, development of perceived 
``key'' industries, etc.; (iv) the type of government intervention and 
control of economic decisions that occurs in non-market economies like 
China--which often incentives noneconomic production and capacity 
decisions.
    In markets targeted by dumped and subsidized imports, the results 
are often severe. These include idling of production facilities, 
bankruptcies, loss of employment, and indeed complete loss of certain 
productive capabilities--with ripple effects for other local businesses 
and indeed national economies. The bottom line is that no private 
company--no matter how cost-competitive or efficient--can compete 
against foreign governments or foreign producers propped up by foreign 
market distortions.
    The adverse impact of dumped and subsidized imports from China has 
been particularly acute and has presented unique challenges for our 
fair trade laws. In recent years, Chinese imports of a wide variety of 
products have flooded the U.S. market. This flood in Chinese imports is 
being fueled, in large part, by mammoth government subsidies. The 
Administration has expressed strong concerns regarding such 
subsidization. Within the last month, the Administration requested the 
establishment of a dispute settlement panel at the World Trade 
Organization (``WTO'') on 12 illegal export and import substitution 
subsidies granted by the Chinese government. While this action 
certainly is a welcome first step, we believe that the subsidies at 
issue in the WTO action are just the tip of the iceberg.
    The government intervention in and control over economic decisions 
in China has also led to significant levels of dumping of Chinese 
products in the United States. In fact, because of the distortions in 
prices and costs in China resulting from the government's dominant role 
in the economy, it is necessary to use a special methodology to measure 
the true level of dumping on Chinese products. Not surprisingly, the 
recent surge in dumped and subsidized imports from China has resulted 
in China becoming a frequent target of trade remedy actions in the 
United States. Over the five-year period from 2002 to 2006, almost 25% 
of all trade remedy actions in the United States were filed against 
China. Thus far in 2007, that number has climbed to 50%. Strong and 
effective enforcement of our trade remedy laws is plainly essential to 
address the special problems posed by Chinese imports.
IV. CHALLENGES FACING U.S. TRADE LAWS
    Notwithstanding their importance, U.S. trade remedy laws are not 
currently being enforced as effectively as they can or should be--and 
face concerted weakening efforts from a number of sources.
A. WTO Dispute Settlement
    Clearly, one of the biggest threats to our trade laws is from the 
dispute settlement system at the WTO. The system is fundamentally 
flawed, and the decisions being issued by the WTO are gutting our trade 
laws.
    The United States has suffered disproportionately from the problems 
with the WTO dispute settlement system, having been named as a 
defendant in far more cases than any other WTO member. The United 
States is also losing almost every case brought against it. In fact, 
the WTO has ruled against the United States in 40 of the 47 cases in 
which it has been the defendant. A number of these decisions have 
required or will require changes to U.S. law.
    Rogue WTO panel and Appellate Body decisions have consistently 
exceeded their mandate by inventing new legal obligations that were 
never agreed to by the United States. As a result of this judicial 
activism, our trading partners have been able to achieve through 
litigation what they could never achieve through negotiation. The 
consequent loss of sovereignty for the United States in its ability to 
enact and enforce laws for the benefit of the American people has been 
staggering. The WTO has increasingly seen fit to sit in judgment of 
sovereign acts running the gamut from U.S. tax policy to environmental 
measures and public morals.
    The problems with the WTO dispute settlement system are most 
painfully obvious in the trade remedies area. Our negotiators in the 
Uruguay Round established specific rules in this area and made clear 
that WTO dispute settlement panels should defer to national authorities 
like the U.S. Department of Commerce and the U.S. International Trade 
Commission (``ITC'') where possible. However, the WTO has ignored this 
mandate and has instead engaged in an all-out assault on trade remedy 
measures. Indeed, the United States has lost an astounding 30 of the 33 
WTO cases that have been brought against it in the trade remedies area. 
A few examples of the overreaching by the WTO in this area show just 
how horribly broken the dispute settlement system is.

      Zeroing. The WTO has now issued a series of decisions 
striking down the ``zeroing'' methodology employed by the Department of 
Commerce to calculate a company's dumping margin. The use of zeroing 
merely ensures that non-dumped sales are not improperly used to offset 
a foreign producer's dumping margins on merchandise that is not fairly 
traded. The WTO has ruled against the use of zeroing despite the fact 
that there is no explicit or, for that matter, implicit prohibition of 
zeroing in the relevant WTO agreements. In other words, as both 
Congress and the Administration have repeatedly recognized, the WTO's 
zeroing decisions have created obligations to which the United States 
never agreed. In fact, the Administration has been harshly critical of 
the WTO's decisions on zeroing. The Administration has called the 
Appellate Body's latest decision on zeroing ``devoid of legal merit'' 
and commented that the Appellate Body ``appears to be trying to infer 
the intent of Members with respect to the issue of 'zeroing' without 
the benefit of a textual basis.'' The Administration has also recently 
stated in no uncertain terms that ``[a] prohibition of zeroing, or a 
requirement to provide offsets for non-dumped transactions, simply 
cannot be found in the text of the [WTO's] AD Agreement. Nevertheless, 
the Appellate Body concluded that authorities are required to offset 
non-dumped comparisons against dumped comparisons, even though this 
conclusion is at odds with long-standing practices implementing AD 
Agreement provisions . . . as well as with long-held views on the very 
concept of dumping itself. The issue of zeroing, on which Members [of 
the WTO] could not reach agreement in the Uruguay Round, should not be 
left to dispute settlement.'' The WTO's decisions on zeroing represent 
a clear example of WTO overreaching in the trade remedies area.
      Byrd Amendment. The WTO's decision striking down the 
Continued Dumping and Subsidy Offset Act of 2000--better known as the 
Byrd Amendment--is another vivid example of WTO overreaching. The WTO 
ruled in this case, without a shred of support in the relevant WTO 
agreements, that AD and CVD duties that are collected by the United 
States may not be distributed to injured U.S. producers. The Uruguay 
Round negotiators never even considered, much less agreed to, any 
restrictions on how WTO members may use collected AD and CVD duties.
      Failure to Abide by the Standard of Review. A problem 
extending throughout the WTO's decisions in trade remedy cases has been 
the failure to abide by the deferential standard of review. The United 
States expended enormous time and resources negotiating the standard of 
review for AD and CVD cases. However, WTO panels and the Appellate Body 
have systematically ignored this carefully negotiated standard of 
review in reaching decisions that show no deference to the findings of 
government agencies such as the Department of Commerce and the ITC or 
to the laws enacted by WTO members.

    I am not alone in this stark assessment of the WTO dispute 
settlement system. Even ardent supporters of the WTO and legal experts 
hostile to the trade remedy laws have expressed amazement at the level 
to which WTO panels and the Appellate Body are creating new WTO 
obligations out of whole cloth. The threat that this poses to the trade 
remedy laws and, in fact, to the entire world trading system is 
immeasurable.
B. Enforcement Issues
    No matter how strong our laws are written, they are only as good as 
the commitment to enforce them. This is a responsibility that obviously 
falls principally upon the executive branch, but is also highly 
relevant to Congress in terms of needed oversight and potential 
amendments to clarify the way in which our laws are intended to be 
implemented. Just to give a few examples where there are areas of 
concern:

      Application of CVD laws to non-market economies. The 
Administration, of course, has recently altered its longstanding policy 
of not applying the CVD law to China. This follows on decades, however, 
where this vital remedy was not applied to China or its vast subsidies. 
In addition, it remains to be seen whether this new policy will be 
fully and effectively enforced.
      China-specific safeguard. This remedy, provided under 
what are sometimes referred to as ``section 421'' actions, was adopted 
when China entered the WTO. Unfortunately, this law has never been 
enforced. Indeed, the ITC has on no fewer than four occasions found 
that the legal requirements for relief had been met, but the 
Administration refused to grant a remedy in any of these proceedings.
      Injury determinations. Proving ``material injury''--
defined under the law as any injury that is not inconsequential, 
immaterial or unimportant--is a prerequisite for relief in AD/CVD 
cases. While Congress made clear that this was not intended to be a 
high hurdle or difficult showing, certain members of the ITC have at 
times seemed to interpret the standard to effectively require a much 
higher demonstration of injury--something that has acted to deny relief 
in critically-needed circumstances.
      Funding for enforcement. There has been increasing 
concern among practitioners in the trade remedy areas with respect to 
the resources of critical agencies such as the Import Administration of 
the Department of Commerce (``IA'') to fulfill its responsibilities 
under the law. Indeed, it is our understanding that IA's appropriation 
was cut from $68.2 million in fiscal year (``FY'') 2004 to $59.8 
million in FY 2007, a decline of 12.3 percent. Similarly, we understand 
that the number of employees at IA fell from 388 in FY 2005 to only 319 
in FY 2007, a decline of 17.8 percent. In my view, cutting funding for 
trade enforcement is exactly the wrong policy at a time that we are 
facing increasing challenges from unfair trade.
C. The Doha Round, Free-Trade Agreements, and Other International 
        Negotiations
    U.S. trade remedy laws are subject to a continuing assault in the 
context of international negotiations--particularly the so-called 
``Rules'' negotiations as part of the larger Doha Round talks. Foreign 
nations, including those who are the most frequent violators of fair 
trade rules, have engaged in an all-out effort to weaken international 
disciplines on dumping and subsidies--and by extension, to require 
weakening changes to U.S. laws. Given the pressure on the 
Administration to bow to such demands, clear guidance from Congress 
will be critical if weakening of U.S. trade laws is to be avoided.
    Just as a matter of interest, Figure 8 shows the 2006 trade 
balances that the United States maintained with the key proponents of 
weakening U.S. trade laws--i.e., those countries that have been most 
active in the Doha Round in trying to gut rules against unfair trade. 
As can be seen, these countries make up the vast majority of our trade 
deficit. The basic dynamic in the Rules talks is that these countries 
would like to gut our trade laws and see these red bars become even 
bigger.
Figure 8
[GRAPHIC] [TIFF OMITTED] 49994A.035

    Similar challenges to U.S. laws exist in other international talks, 
including FTA negotiations (e.g., the U.S.-Korea FTA) and regional 
talks like the Free Trade Area for the Americas. Vigilant oversight by 
Congress is essential, along with a clear message that Congress will 
not adopt any international agreement that weakens U.S. trade remedy 
laws.
V. POTENTIAL ENHANCEMENTS TO U.S. TRADE LAWS
    There have been a number of excellent proposals to strengthen U.S. 
trade laws and provide additional tools to ensure a level playing field 
for U.S. producers and workers. I would like to address a few priority 
issues that are likely to be considered by Congress.
A. Applying U.S. Anti-Subsidy Law to Non-Market Economies
    Proposals to legislatively mandate that the CVD law be applied to 
non-market economies like China have received a great deal of attention 
and deservedly so. Legally, this is clearly a well-justified action, 
and as noted above the Administration has already announced a policy 
change to begin applying CVD measures to China.
    Even with the Administration's policy change, legislative action is 
still critical--both to ensure that this policy change will withstand 
potential legal challenges and that the policy is properly implemented.
    Having said that, it is very important that this law be adopted in 
a form that will actually fulfill its intent. In this regard, there 
have been a number of proposals to weaken the legislation in a way that 
could actually make the measure counterproductive--and potentially 
result in less, rather than more, discipline on unfair trade from 
China.
    To make sure this legislation is effective, the Committee should 
recognize several key points:

      Application of CVD rules to China should not, and must 
not, have any impact on its treatment as a non-market economy for 
purposes of the AD law. These are logically distinct issues, and the 
evidence is clear that China does not qualify as a market economy. 
Treating it as such--or indeed, treating individual Chinese producers 
or sectors as ``market oriented''--would not only effectively remove 
the benefit of applying the CVD law to China; it could actually result 
in weaker overall fair trade enforcement than existed before the policy 
change.
      Congress should be required to approve any decision to 
designate China as a market economy. This decision is simply too 
important to our economy and our laws for Congress not to have a say.
      Application of the CVD law should not result in weaker 
enforcement of AD measures against China. In this regard, there is no 
legal or logical basis for proposals to reduce AD margins by the amount 
of any countervailing duties imposed to offset domestic subsidies. The 
antidumping methodology used in non-market economy cases is not 
intended to, and does not, correct for or offset domestic subsidies, 
and there is as such no basis for the so-called ``double counting'' 
adjustments that have been proposed.
B. Zeroing
    While explicitly codifying the application of CVD law to non-market 
economies is clearly a good idea, much more needs to be done if 
Congress is to meaningfully impact the effect of unfair trade from 
China and other foreign countries.
    One area that I believe absolutely must be addressed relates to the 
antidumping methodology mentioned above and known as ``zeroing.'' No 
decision of the WTO has received more strident, detailed and deserved 
criticism than the WTO jurisprudence with respect to this critical 
methodological practice. The decisions on zeroing have no basis in the 
relevant WTO agreements and represent a stark example of WTO 
overreaching. While this is a highly complex methodological issue, it 
goes to the core of the effectiveness of our trade laws in cases 
against China and others.
    While some would say that we must abide by the WTO's ridiculous 
decisions in this area ``for the good of the system,'' I believe that 
Congress should soundly reject this way of thinking. It is not good for 
the system to have the WTO's judicial bodies acting as policy makers 
and issuing decisions that completely circumvent the intent and 
understanding of negotiators. It is also not good to send the message 
to our citizens that we will abide by any WTO decision, no matter how 
clearly condemned and criticized by the range of knowledgeable 
observers. The assurances that we were not giving up our sovereignty by 
agreeing to the Uruguay Round will have little meaning if we adopt a 
policy of essentially automatically implementing flawed decisions.
    The Administration has already started implementing the WTO 
decisions on zeroing by not using zeroing in certain antidumping 
proceedings, and this is causing enormous problems for U.S. producers. 
If the Doha Round negotiations do restart, they may well offer an 
opportunity to clarify this issue in any new agreement. In the 
meantime, it is imperative that Congress act to suspend implementation 
of the baseless WTO decisions on zeroing. This will add impetus for a 
negotiated solution in the Doha talks, and will prevent irreparable 
injury in terms of the application of our trade laws.
C. Currency Manipulation
    Another area that has received enormous attention is foreign 
currency manipulation, and there is simply no reasonable or logical way 
to deny that this problem is having enormous effects on our 
manufacturers. I would respectfully suggest that the school of thought 
advocating more ``dialogue'' and talk on this issue has lost its 
credibility. At the pace these discussions are going, we will not see 
meaningful change while it can still make a difference. To paraphrase 
the economic quip, in the long run we--or at least all our 
manufacturers--will all be dead.
    Currency manipulation seriously distorts markets and undermines the 
very foundation of free trade. It acts as a major subsidy for 
manufacturers in the manipulating country, because it makes their 
exports artificially competitive. It also acts as a tariff on U.S. 
shipments to the manipulating country, by making those shipments 
artificially expensive.
    Our enormous trade deficit with China would normally cause the 
Chinese yuan to rise significantly vis-a-vis the dollar, but China 
prevents such a rise by exercising tight control over its exchange 
rates. Indeed, some experts believe that China's yuan is now 
undervalued by as much as 40 percent or more. China is not the only 
country to engage in currency manipulation. Japan and others have 
employed similar tactics.
    There are a variety of sensible proposals out there--including the 
proposal to treat currency manipulation as a subsidy for purposes of 
U.S. CVD laws. Those initiatives should be considered and acted upon to 
spur real change in the context of a currently unsustainable situation.
D. Material injury methodology
    As noted above, there are a number of concerns about the manner in 
which ``material injury'' has been determined in certain ITC 
proceedings. While that issue merits further consideration and possible 
legislative action, there is one area relating to the ITC's material 
injury determinations that should clearly be addressed legislatively at 
this point. That relates to a recent decision of the U.S. Court of 
Appeals for the Federal Circuit in the so-called Bratsk case.\3\
---------------------------------------------------------------------------
    \3\ Bratsk Aluminium Smelter v. United States, 444 F.3d 1369 (Fed. 
Cir. 2006).
---------------------------------------------------------------------------
    In Bratsk, the Federal Circuit held that in unfair trade 
investigations, the ITC was required to explain why non-subject imports 
(i.e., imports that were not subject to the proceeding) would not 
replace the subject imports and continue to cause material injury to 
the domestic industry. This requirement is nowhere found in the law and 
effectively engrafted onto the ITC's analysis of present material 
injury a new requirement regarding speculation as to the future impact 
of AD/CVD relief. Congress has made clear that a domestic industry is 
entitled to AD/CVD relief if it is currently injured by reason of 
subject imports. Under Bratsk, however, the ITC may be forced to deny 
relief to a domestic industry currently suffering material injury by 
reason of subject imports (which is the statutory standard), solely 
because of speculation about the future behavior of non-subject imports 
(a factor found nowhere in the statute).
    This decision has given rise to a great deal of concern among 
practitioners and indeed by the agency itself. In addition to the 
improper alteration of the statutory standard, as discussed above, this 
case also poses innumerable practical and administrative difficulties. 
The fact is that the agency does not collect or have the ability to 
reasonably obtain accurate and sufficient information to determine the 
future behavior of parties that are not even before the Commission, and 
have no reason or incentive to participate. In short, the decision has 
no logical or statutory basis, and Congress should act to reverse it.
E. WTO Reform
    Getting some handle on the problems brought about by judicial 
activism at the WTO--and reining in those abuses--is also a top 
priority. As noted, WTO overreaching has negatively impacted a vast 
range of core aspects of the trade remedy laws (not to mention other 
U.S. laws in the tax, foreign policy, environmental, and other areas), 
and is increasingly a threat to the legitimacy of the entire world 
trading system.
    Several common sense actions should be pursued immediately:
    First, Congress should establish an expert body to advise it on WTO 
dispute settlement decisions adversely impacting the United States, and 
in particular whether WTO decision makers are following the law and the 
relevant standard of review. This idea was first put forward shortly 
after the conclusion of the Uruguay Round. It was a good idea at the 
time, and every day we see more and more evidence of why such a body is 
needed.
      Second, Congress should specifically provide for the 
participation in WTO dispute settlement proceedings of private parties 
who would bring special knowledge to a case and be in a position to 
assist in the U.S. Government's litigation efforts. In this regard, 
foreign governments already frequently make use of private (often U.S.) 
lawyers in prosecuting WTO actions, and there is no reason the United 
States should not similarly bring all supportive resources to bear in 
this increasingly vital litigation.
      Third, any proposed administrative action taken to comply 
with an adverse WTO decision should require specific approval by 
Congress. In a number of instances, the Administration has expressed 
strong disagreement with adverse WTO dispute settlement decisions, and 
yet felt the necessity to take administrative steps to comply with such 
judgments. Given the importance of these decisions to the U.S. economy 
and U.S. citizens--and the obvious sovereignty concerns at stake--
Congress should have a direct say in whether there will be a change in 
U.S. law or practice to comply with the rulings of foreign bureaucrats.
    These steps would not only improve the way we litigate cases at the 
WTO, but would hopefully provide a powerful incentive for reform at the 
WTO itself--given the recognition that Congress will be playing a more 
active role monitoring and responding to WTO decisions.
F. VAT Tax Inequities
    Another issue of concern for American manufacturers involves the 
irrational penalty imposed by WTO rules on producers in countries 
(principally the United States) that rely on income tax systems, as 
opposed to producers in countries (most of the rest of the world) that 
rely upon value-added tax (``VAT'') systems. For decades, Congress has 
repeatedly instructed our trade negotiators to correct this problem, 
and yet nothing has been done.
    The problem is that under current rules, foreign countries may 
``adjust'' their VAT taxes at the border--meaning that those taxes may 
be rebated on exports and imposed on imports. Meanwhile, income taxes 
may not be adjusted. Accordingly, producers in a country like the 
United States (which relies disproportionately on a corporate income 
tax), must bear both the U.S. income tax and foreign VATs on their 
export sales, while their foreign competitors may sell here largely tax 
free. (Figure 9 below shows how this system places U.S. producers at a 
significant disadvantage). Recent estimates suggest that this disparity 
likely impacts the U.S. trade balance by more than $130 billion per 
year. There is no economic justification for this practice; it is 
simply a gift to foreign producers.
Figure 9
[GRAPHIC] [TIFF OMITTED] 49994A.036

    Congress has regularly cited this disparity and made clear that 
eliminating it should be a top priority in international trade talks. 
Indeed, in 2004, the House of Representatives voted 423-1 in support of 
a resolution calling on the President to regularly report to Congress 
on progress in resolving this issue--and ending the disparate and 
unfair treatment of U.S. producers under WTO rules--through 
international agreement.\4\ Unfortunately, nothing significant has been 
done to move the ball forward.
---------------------------------------------------------------------------
    \4\ H. Res. 705 (July 14, 2004).
---------------------------------------------------------------------------
    The time has come to demand that our trading partners agree to a 
fairer system. Again, there are a number of good proposals. One 
approach would be to demand that this problem be rectified in 
negotiations by a set period (e.g., 1-2 years)--after which period the 
United States would begin to treat foreign rebates of VAT taxes as a 
countervailable subsidy (just as rebates of income taxes are now 
treated). The point again is that action is urgently needed.
G. Funding for Trade Enforcement
    Congress should make sure that our core enforcement agency--namely 
the Import Administration--is receiving adequate funds and manpower to 
do the job it is called upon to perform.
H. Congressional Oversight of Trade Negotiations
    Finally, Congress needs to become more aggressive in overseeing 
U.S. trade negotiators. Our trading partners have made it a first 
priority to weaken these core disciplines, and without Congress' direct 
involvement and resolve, they are likely to succeed. Congress should 
make clear that it will oppose international agreements that serve--in 
whole or part--to weaken U.S. fair trade remedies.
VI. CONCLUSION
    The crisis facing U.S. manufacturing--along with the increasing 
evidence that U.S. workers and businesses are facing an uneven playing 
field vis-a-vis their foreign competition--has given rise to a new 
level of concern in the country, and arguably a unique opportunity to 
pursue policy measures that will make a real difference. I hope that 
Congress will take advantage of this window to seek real change, and to 
avoid half measures or window dressing that will not have a real impact 
on the problem. I truly believe that the economic future and 
opportunity for our children and grandchildren are at stake, not to 
mention the strength and capabilities of our entire economy.
    Thank you for the chance to be here today.

                                 

    Chairman LEVIN. Thank you very much.
    Under the procedure we agreed on, Mr. Weller would go 
first.
    Mr. WELLER. Thank you, Mr. Chairman.
    I regret I missed the beginning of this hearing, but am 
glad to be here. This is an important hearing today, and I have 
some questions I want to raise, but I don't want to miss this 
opportunity at a Subcommittee on Trade and let this pass 
without noting that our pending trade agreements with Peru, 
Colombia, Panama, Korea, currently stalled, and they were going 
home for the August recess without any movement forward when we 
have had plenty of time to have a hearing and move the trade 
agreement.
    I just want you to know, Mr. Chairman, I believe this is 
disappointing, especially in light of preferential one way 
access into our markets that our Latin partners have. Opening 
agreements with Peru, Colombia and Panama would immediately 
provide benefits for U.S. manufacturers and farmers would have 
their taxes for exporting to these countries largely 
eliminated.
    Again, China trade issue is important, but we can't forget 
we have opportunities immediately before us, including our most 
commercially significant trade agreement with Korea that are 
not being addressed and even been threatened to be rejected by 
the Democratic Majority Leadership.
    I think we have a general consensus that China presents a 
trade challenge, some of the issues have been brought up in 
testimony, I have a few questions here that I would like to 
raise.
    Mr. Leibowitz, you focused from a consuming standpoint on 
zeroing and, of course, the WTO implications. Could you further 
comment on how problematic zeroing is, particularly for the 
average consumer in America, what this would mean in terms a 
consumer would understand.
    Mr. LEIBOWITZ. I will certainly do my best, I can't 
guarantee the understanding part, but I will do my best. Thank 
you for the question.
    George Bernard Shaw once said that a government that robs 
Peter to pay Paul can always depend on the support of Paul. I 
think that those companies that benefit from the imposition of 
duties are obviously fighting very hard to keep the duties as 
high as possible. Zeroing keeps them high, because what it does 
is it ignores the impact of imports of subject merchandise, 
merchandise subject to these cases on the domestic economy; 
these are prices that are higher than so-called normal value. 
It is usually, the price overseas is the normal value. Many 
cases have a few transactions that are below normal value and 
many that are above normal value. It is hard to generalize it, 
but it is quite common in my experience.
    Mr. WELLER. Give me an example of a particular product in a 
dollars and cents standpoint in simple terms?
    Mr. LEIBOWITZ. For example, one case I studied quite 
carefully is a case I worked on involving stainless steel 
products from Italy, Mr. Hartquist here was my opponent in that 
case; 75 percent of the transactions reviewed by the Commerce 
Department were at above normal value; 25 percent were below. 
They ignore the 75 percent that were above. The important thing 
is zeroing is not a good policy idea because it sets the tax a 
rate that ignores the beneficial impact on the market of those 
transactions above normal value. It is as simple as that. If 
you want to set the tax at the right level, you look at the 
impact of the imports from that foreign producer, whether they 
are above or below normal value.
    The WTO made a decision that I would be happy to defend. I 
think it is absolutely correct. They did analyze the text of 
the agreement. I disagree with a lot of people who say 
otherwise, but unfortunately, in this game, everybody who 
really is knowledgeable has an ax to grind. I certainly am not 
excluded from that equation.
    Mr. WELLER. Thank you Mr. Leibowitz.
    Mr. Lighthizer, in your testimony you discuss the issue of 
essentially border adjustability that particularly our European 
competition is able to take advantage of, allowing them to 
adjust their VAT taxes at the border, meaning that they can 
rebate the taxes and then impose the VAT on imports. Of course, 
that is a frustration for a lot of us, because under our income 
tax system there appears to be a bias on the WTO.
    Can you elaborate further on what you discuss in your 
testimony, but also elaborate further on not only the 
consequences, but what we should be doing to address that issue 
so that we are treated fairly in comparison with our 
competition?
    Mr. LIGHTHIZER. Thank you, Congressman, for the opportunity 
to do that. When you called on me, I was hoping you were asking 
for an alternate view on the issue of zeroing, but I'll wait.
    Mr. WELLER. I'm limited on time.
    Mr. LIGHTHIZER. Am I also limited?
    Mr. WELLER. You can go to that if you would like.
    Mr. LIGHTHIZER. First of all, I am a Republican. I am a 
hawk on the trade deficit. If you asked what are the two most 
important things to me to get us on track that have nothing to 
do with protectionism, the first thing would be to do something 
about currency. By far the second most important thing is this 
value-added tax problem.
    We have allowed a system to develop which makes absolutely 
no sense. It never made any sense. It is something that while I 
was in the Reagan Administration I fought about, and we have 
been fighting about it ever since.
    Most of the world funds their government through a value-
added tax. As a result of just a happenstance of history, we 
have allowed those people to rebate that tax, on their exports, 
and to give it to imports, essentially to have it as a barrier 
to imports and a subsidy for exports.
    We in the United States--for a variety of reasons--have 
decided an income tax is a fairer, better way to tax, and I 
think you could make a good case that it is. Because we made 
that judgment as a society, we have put ourselves in a position 
where we now are letting everybody bring in their products 
essentially tax free, and we are exporting all of our products 
with a double tax. It is just the stupidest thing you can 
imagine.
    Let me say this--I am already over your time, so I 
apologize for that. But I would say this. The Congress of the 
United States has passed fast track legislation six or seven 
times. Every single time you passed it, you told the 
Administration to deal with this issue, this is a critical 
issue. We have an economist from MIT that said this one little 
issue adds more than $140 billion a year to our trade deficit. 
This guy Jerry Houseman, who is this great economist, has made 
this calculation.
    I will bet you that my answer to your question, the amount 
of time that I have spent talking about this is more than every 
Administration has spent talking about this issue with our 
trading partners in the entire seven rounds.
    Mr. WELLER. Specifically, if you will humor me, Mr. 
Chairman, specifically what should we do to address this issue?
    Mr. LIGHTHIZER. Well, that is a great question. We should 
tell our trading partners that if in the next 18 months this 
inequity, which has no economic justification at all, isn't 
corrected by an agreement, then we are going to start 
countervailing against countries who rebate their taxes when 
they ship to the United States. That is what I would do.
    Now, some other people have said take that we should also 
take that money and subsidize our exports. All of this is 
creating a crisis. I think we have to create a crisis. The rest 
of the world has had it their way for more than 40 years. At 
the beginning it really didn't matter because you know, if you 
look at the chart I put in there, we were basically doing okay 
in trade. It was a small part of everything. But when you get 
to an $800 billion trade deficit all this stuff matters.
    So, I think what you have to do is precipitate a crisis. I 
think you have to pass a law that says, Administration, in 18 
months we are going to start countervailing against these 
countries unfairly subsidized by rebating their taxes.
    Chairman LEVIN. All right.
    Mr. LIGHTHIZER. I'm sorry.
    Mr. WELLER. Thank you for being generous with my time.
    Chairman LEVIN. No, no, not at all.
    Mr. Herger, I think we have a commitment to wrap up, but go 
ahead. I think if we extend a couple minutes. We do have a need 
to leave so that the room can be prepared, but go ahead.
    Mr. HERGER. Thank you, Mr. Chairman.
    Mr. West, I appreciated the point you raised in your 
testimony, particularly the real effects artificially high 
tariffs would have on your ability to compete. If these tariffs 
are inconsistent with WTO rules as USTR, Treasury and Commerce 
say they are, then there are further negative consequences.
    Many people and many Members of Congress say, quote, ``Who 
cares if we violate the WTO,'' closed quote. To them it is 
abstract, but to you it is very real. If we break the WTO 
rules, then other countries punish companies like yours by 
making it more difficult for you to export. I understand that 
19,000 small- and medium-size businesses like yours export to 
China, accounting for $11.4 billion.
    Are you concerned that products from your company and 
others in your association will be singled out for retaliation 
if these bills are enacted and are found to violate the WTO?
    Mr. West. Congressman, thank you for the question. I am not 
an expert on all the trade policies, but I will tell you as a 
practical businessman we are always concerned about potential 
ramifications and issues and loss of intellectual property or 
other things that could occur in the environment out there.
    So, one of the things that is very, very important for us 
is to always have as much free trade and unrestricted trade as 
possible. We are part of the world industry that has components 
manufactured here, products manufactured there, brought all 
across the world, and it is very very important to have 
unrestricted trade to all the products that we make. It is a 
very, very important part of the process.
    Mr. HERGER. I thank you, Mr. West. I think this is a point 
that is very little understood by the American people. We tend 
to see the big companies, which I share the concern with, but 
we tend to not see all the thousands of small businesses that 
are exporting the tin but really catch it on the chin trade-
wise if we are not prudent and balanced in conducting this.
    Mr. Leibowitz, I am concerned that the proposed legislation 
is only going to benefit a few U.S. producers to the detriment 
of other U.S. producers, especially since the trade remedy 
provisions can be used against all our trading partners. For 
example, just last October, Ford, GM, and other automakers 
testified before the International Trade Commission that anti-
dumping duty orders were severely limiting their ability to 
obtain the steel they needed for their U.S. manufacturing 
operations. I understand that for every job in the steel-
producing sector of our economy there are 40 jobs in the steel-
consuming sector. What can we do to ensure that these bills 
won't result in the government picking and choosing winners 
among U.S. manufacturers?
    Mr. LEIBOWITZ. Well, I think the single most important 
thing we can do is give consumers a meaningful role in these 
cases. That is something that CTAC strongly supports. We have 
been working with Mr. Knollenberg and others to achieve that.
    Last year in the ITC we, the six major automobile companies 
in the U.S., the traditional Big Three, plus Toyota Honda, and 
Nissan, all joined together to urge that the orders on steel 
that used the most not be renewed. The steel industry didn't 
need the protection. They were making money at historically 
high rates. And 2006 was their best year ever. At the same time 
imports were higher than ever. So, imports go hand in hand with 
prosperity in many ways. It is counter-intuitive but it is 
true.
    So, I think the single most important thing is to make sure 
that every stakeholder has a role. At the ITC we didn't, but 
these auto companies were noticed because they were an unusual 
appearance at those hearings. They had to borrow time from the 
foreign respondents in order to appear, which I think is 
unfair. We could talk about that for quite a while.
    My most important point is that if we give everybody a 
meaningful role, we can get the tax right. Zeroing is not a 
fundamental part of a law. If it were, we would say something 
about it in the law. We say nothing about it. We got to get the 
tax right, we have to get the injury determinations right, we 
need to make sure that we consider everybody's interest. The 
way to do that is give everybody a seat at the table.
    Mr. HERGER. Thank you very much. I think the point you are 
making is we have to get it right.
    Mr. LEIBOWITZ. We have to get it right, because most people 
lose if we get it wrong.
    Mr. HERGER. Thank you.
    Chairman LEVIN. We are going to adjourn. In terms of 
getting it right, let me just as we close quote what the U.S. 
Government said about the zeroing decision. These are their 
words: Very troubling, fatally flawed, devoid of legal merit.
    That is a little hard to think of something more criticized 
than that.
    Mr. West, as we leave, I was just looking at the high-tech 
export figures for 2006. I think as we proceed we ought to be 
sure we look at the facts. The high-tech U.S. exports to China 
in 2006 were $14 million. The imports from China, this was to 
China, were $102 million. So, maybe we can correspond about 
that. But I think it is a misconception that trade is our shoes 
and our apparel, their shoes and their apparel and their toys, 
while ours is high-tech.
    There is increasing amounts of what is classified as high-
tech coming from China. Actually the major increase in 2006 in 
our exports to China was in semiconductors. But we will have 
more time to talk about it.
    Thank you to all of you and thanks to everybody who came to 
listen to this. I think this has been, Mr. Herger, a very 
useful hearing and we now stand adjourned. Thanks again.
    [Whereupon, at 12:40 p.m., the hearing was adjourned.]
    [Submission for the Record:]
                 Statement of Honorary Alan B. Mollohan
    Chairman Levin and Members of the Subcommittee, thank you for the 
opportunity to submit this testimony for the record. I appreciate very 
much that you are holding this hearing. I believe we are long overdue 
for legislation that helps strengthen our trade laws and that deals 
with the specific trade problems we are encountering with China. The 
United States has the most dedicated and efficient workforce in the 
world, but we cannot compete with foreign companies who benefit from 
government subsidies or who engage in dumping in order to build market 
share, all the while keeping their own borders closed to our exports. 
This lopsided approach to trade is evident in our $800 billion trade 
deficit, $200 billion of which is with China alone.
    I recently testified before the International Trade Commission 
(ITC) during their sunset hearing on hot-rolled sheet steel. The ITC 
held hearings to consider whether the antidumping and countervailing 
duty orders on hot-rolled carbon steel flat products from eleven 
countries should be lifted. China was among the countries under 
consideration. China's record with regard to dumping steel and steel 
products in the U.S. is reprehensible. China has built large amounts of 
hot-rolled capacity in the past five years and should these orders be 
lifted China will, once again, flood our country with hot-rolled 
product. The largest steel producer in my district, Mittal (Weirton) 
Steel, in 2004 a company of over 3,000 employees, currently has 
approximately 1,200 employees. This is certainly due, in large part, to 
the failure of the current Administration to enforce U.S. trade laws 
and allow unchecked dumping of steel and steel products.
    Manufacturers have been forced to shut down facilities in West 
Virginia and throughout the country due to competition from cheap, 
unfairly traded imports. For example, NewPage Corporation had to shut 
down a paper machine at its Luke, MD facility earlier this year because 
Asian imports had driven prices down to a level where that machine 
could no longer be operated profitably. The large number of antidumping 
cases filed against China in recent years demonstrates that China is 
the world's single biggest violator of fair trade rules. It is crucial 
that we strengthen our trade laws to make sure they are robust enough 
to address these unfair Chinese imports before even more hard-working 
Americans lose their jobs. It is also important that we remedy key 
instances in which courts and international organizations have 
attempted to weaken U.S. trade laws.
    Two of the major ways China gains an unfair advantage over U.S. 
companies are by keeping its currency undervalued and providing large 
subsidies to many industries. The effect of both of these trade-
distorting Chinese policies is that Chinese goods can be exported at an 
artificially low price, putting U.S. manufacturers at a massive 
disadvantage. The U.S. Government must find a way to pressure China 
into revaluing its currency so it reflects economic reality. Also, the 
countervailing duty law is a critical tool to combat subsidies in China 
and other non-market economies. There is no question it should continue 
to be applied to any countries providing illegal subsidies, whether or 
not they happen to be market economies.
    Make no mistake, many more workers in numerous U.S. industries are 
in danger of losing their jobs as result of unfairly traded imports 
from China and other countries. We have a responsibility to our own 
constituents and the American people as a whole to address this serious 
problem by strengthening our trade laws before the trade deficit 
worsens and even more hardworking Americans lose their jobs. A number 
of pertinent legislative measures have been introduced that address 
some of these issues, including currency manipulation. I urge the 
Subcommittee to act on these measures expeditiously before the 
manufacturing sector of our Nation is eliminated entirely.

                                 
          Statement of American Apparel & Footwear Association
    The American Apparel & Footwear Association (AAFA) is the national 
trade association representing the apparel and footwear industries, and 
their suppliers. Our members produce and market apparel and footwear 
throughout the United States and the world, including China. In short, 
our members make everywhere and sell everywhere.
    I would like to take this opportunity to briefly describe the 
importance of China to the U.S. footwear and apparel industries and how 
our relationship with China benefits U.S. apparel and footwear firms, 
U.S. workers, U.S. consumers and, in turn, the U.S. economy. I will 
also discuss our concerns and hopes for this relationship in the 
future, particularly as it relates to the focus of this hearing--i.e. 
legislation related to trade with China.
Our Industry--Then & Now
    But first, a little background on our industries. Our industries 
have historically been among the most protected industries in the 
United States--subject to decades of stiff protection in the form of 
high tariffs and restrictive quotas (for apparel). Even today, U.S. 
apparel and footwear imports from China are still subject to high 
tariffs and, in the case of apparel, quotas.
    Yet, this incredible protection failed to do the very thing it was 
supposed to do, protect the U.S. apparel and footwear manufacturing 
base. Today, 99 percent of all footwear and 91 percent of all apparel 
sold in the United States is imported. For comparison, in 1980, only 
one-half of all footwear and less than one-third of all apparel sold in 
the United States was imported.
    Today, less than 570,000 people work in the manufacturing of 
apparel, textiles and shoes in the United States--a loss of over 1.7 
million jobs, or three-quarters of the entire U.S. footwear and apparel 
manufacturing workforce since 1974. One million of those jobs have been 
lost in the last decade alone.
    Despite this seemingly bleak picture, the U.S. apparel and footwear 
market is booming. Americans like their clothes, and their shoes, and 
it shows. U.S. consumers spent a record $359 billion on apparel and 
footwear in 2006, or an average of $1200 for every man, woman and child 
in the United States. Even as energy prices skyrocketed here in the 
United States last year, retail sales at clothing and footwear stores 
were 4.9 percent higher in 2006 than in 2005. The bottom line is that 
despite whatever economic pressures face us, Americans still buy new 
things to wear. Americans, however, are picky about their shoes and 
clothes, they continually want an ever-wider variety of higher-quality 
shoes and clothes available at lower prices and made in a socially 
responsible manner and our industry has had to respond.
    U.S. footwear and apparel firms have responded to these challenges 
by transforming themselves from manufacturers into brands. Today's U.S. 
apparel and footwear ``brands'' are more lean and more competitive than 
ever--their goal is to provide the American consumer with what they 
want--the best brands at the best prices made under socially 
responsible conditions, while still making a profit.
    And the result of this is that U.S. apparel and footwear firms are 
thriving, with many achieving profits last year--profits that go 
directly back into the U.S. economy and ensure a competitive industry. 
Further, while the industry has lost over one million manufacturing 
jobs in the last decade, the industry has produced hundreds of 
thousands of good-paying new jobs for U.S. workers--not in 
manufacturing, but in such varied professions as design, research and 
development, marketing, distribution, sourcing, warehousing, 
management, administration and sales. Further, the industry directly 
supports another 1.5 million plus jobs at retail establishments 
throughout the United States.
    The industry's transformation has directly benefited U.S. 
consumers--particularly hardworking lower- and middle-income American 
families--by lowering prices on one of the most basic staples every 
man, woman and child needs. As a result of the industry's 
transformation, apparel and footwear retail prices have declined some 
11.9 percent and 5.8 percent, respectively since 1998, despite a more 
than 27 percent increase in overall retail prices during the same 
period--saving American families countless billions of dollars every 
year--money they pump back into the U.S. economy.
    Thanks to these lower prices, American families today spend a 
smaller percentage of their income on shoes and clothes, a necessity 
for every American, and instead spend more elsewhere. According to the 
U.S. Department of Commerce's Bureau of Economic Analysis, the 
percentage of the average American family's Personal Consumption 
Expenditures (PCE) spent on clothes and shoes has dropped by almost 
one-half since 1977--from 6.6 percent of total PCE in 1977 to less than 
3.9 percent today. With consumer spending driving over 2/3 of our Gross 
Domestic Product (GDP), the decline in U.S. apparel and footwear prices 
not only helped hardworking American families better afford two of 
life's most important staples, but has helped fuel the overall economy.
China 's Relationship with the U.S. Apparel & Footwear Industry
    The U.S. footwear and apparel industry could not have succeeded in 
transforming into the success that it has become today without the 
existence of China. Working almost exclusively with foreign-owned and/
or privately-held factories in China, U.S. apparel and footwear firms 
have been able to give American consumers what they want--an ever-wider 
variety of higher-quality shoes and clothes at lower prices--while 
ensuring that those clothes and shoes are made in a socially 
responsible manner.
    Today, this relationship is stronger than ever. U.S. footwear and 
apparel firms imported over $30 billion worth of footwear and apparel 
from China in 2006. U.S. imports from China today account for over 86 
percent of all shoes and over 27 percent of all clothes sold in the 
United States.
Opening the Chinese Market to U.S. Apparel and Footwear Brands
There Has Been Progress, but More Must be Done
    U.S. footwear and apparel firms, however, recognize that 95 percent 
of the world's population lives outside the United States. Some of 
their fastest growing markets are no longer in the United States or 
Europe, but in China, or India or Brazil. U.S. apparel and footwear 
firms are now truly global--they buy and sell clothes and shoes all 
over the world. That is why AAFA's motto is--``We Dress the World.''
    Our industry was one of the biggest supporters of China entering 
the World Trade Organization (WTO), not just because of our 
relationship with China as a supplier to the U.S. market, but because 
we wanted to use WTO rules to open China--with the world's largest 
middle class of 200 million people and growing--to U.S. brands. Since 
China's WTO accession, our industry has worked closely with the U.S. 
Government and the rest of the U.S. business community to ensure that 
China lives up to its commitment in opening up its distribution and 
retail sectors. Thanks to our efforts, China has largely lived up to 
those commitments, opening the doors to U.S. brands to sell into the 
vast Chinese market.
    While U.S. brands have had some success in China because of these 
efforts, significant restrictions still exist in our sectors. We hope 
the Chinese fully live up to their commitments in these areas.
China & The Currency Issue
    On the issue of currency, we believe the best long term strategy is 
a freely convertible currency. Our concerns with some of the approaches 
being discussed--in addition to the concerns stated elsewhere about WTO 
compatibility--is that it is extremely difficult to identify the 
``right'' exchange rate. Indeed, advocates for trade remedies often 
point to a ``range'' of currency misalignment in China of 15 to 40 
percent. Such wide discrepancies make it difficult to identify and 
execute effective trade remedies. For example, advocates of a China 
currency bill last year arbitrarily picked 27.5 percent (half way 
between 15 and 40) for a trade remedy to counter China's currency 
levels. Moreover, since China allowed its currency to float on a 
limited basis, the renimbi has already risen about 10 percent, putting 
it in the neighborhood of the 15 to 40 percent range cited earlier. 
While we share the Committee's frustration that the path toward 
currency adjustment has not gone more quickly, we note that slow and 
deliberate change, rather then abrupt shifts, is the key to 
predictability to make sure business is not disrupted.
Intellectual Property Rights (IPR)
    Moreover, we have been deeply disappointed with the progress made 
to date on China's efforts to improve its Intellectual Property Rights 
(IPR) enforcement. U.S. footwear and apparel brands have been subject 
to rampant counterfeiting in China, stalling our efforts to break into 
this important market. This problem even affects us in our home 
market--the United States. Every year, clothes and shoes top the list 
of counterfeit items seized by U.S. Customs. We estimate that these 
seizures represent only a small fraction of the total amount of 
counterfeit shoes and clothes entering the U.S. market. China must do 
more on IPR enforcement. Therefore, we strongly support the U.S. 
Government's actions in taking China to WTO dispute settlement over lax 
IPR enforcement. We hope that the combination of the WTO cases and 
ongoing dialogue will resolve an issue that is so critical to our 
industry.
Subsidies
    We applaud the Bush Administration in initiating a case against 
China in the World Trade Organization (WTO) against China's continued 
use of WTO-Prohibited Subsidies. Such subsidies can truly distort trade 
in certain products and industries. Further, the arbitrary nature of 
such subsidies, where China has provided and then removed such 
subsidies without notice, creates immense uncertainty for our industry. 
This uncertainty is endemic of the lack of transparency that still 
exists in China.
Product Safety
    On the issue of product safety, I would again caution against 
making any major policy changes without thoughtful review. Our 
industries are at the forefront of the product safety issue, because 
our products come into contact with every man, woman and child in the 
United States 24 hours a day, seven days a week. Our industry is a 
pioneer when it comes to dealing with hazardous substances and 
chemicals coming into contact not only with the clothes and shoes we 
wear every day, but dealing with the substances that come into contact 
with the workers who make those shoes and clothes. On behalf of our 
industries, AAFA recently published the first-ever industry-wide 
restricted substances list (RSL). Further, the industry, in cooperation 
with the Government, has established strict standards when it comes to 
product safety for the clothes our children wear. Our members have long 
maintained strict quality control and environmental compliance 
mechanisms at the factory level, many of which are located in China, 
that ensure that these hazardous substances do not come into contact 
with the clothes and shoes we make or the workers who make them nor 
jeopardize the safety of the children who wear them. On the off chance 
unsafe products do enter the U.S. market, our industry, again in 
cooperation with the U.S. Government, has implemented effective 
mechanisms to quickly remove those unsafe products from the 
marketplace. These activities ensure that product safety is effectively 
maintained while not slowing the pace of commerce. While we recognize 
that improvements can always be made, we caution that changes to the 
current U.S. product safety system not be done in a way that creates 
major disruptions in commerce while failing the fix the very problem 
those changes were made to fix--improving product safety. We would be 
happy, however, to work with the Committee to craft any proposals that 
we believe would improve product safety while not substantially slowing 
commerce.
Next Steps--the U.S. Apparel and Footwear Industry View
    As we noted, China still has a long way to go in meeting its 
international obligations--as both a major economic power and as a 
major market for U.S. brands and U.S. products. We fully support the 
current Administration's efforts to address these many issues through 
dialogue. As we also noted, however, our industry has and will continue 
to support further actions in specific instances where dialogue 
continues to produce less than desired results.
    I would, however, caution those who would propose certain 
``remedies'' for the purpose of resolving many of these issues. First, 
many of the proposed ``solutions'' clearly violate U.S. obligations 
under international trade rules. While many might not be concerned 
about this, this violation is of critical concern to our industry. As I 
mentioned previously, U.S. apparel and footwear firms make and sell 
everywhere around the world, including selling clothes and shoes made 
in China into major markets like Europe, Brazil and India. Any action 
taken by the United States against China that violates international 
trade rules would not only be closely watched by these countries but 
quickly replicated, closing these important markets to U.S. brands.
    Second, many of these proposed ``remedies'' would impose 
significant penalties, in the form of punitive duties or other 
restrictions, on some or all U.S. imports from China. As I have already 
stated, virtually all clothes and shoes sold in the United States are 
imported, with a significant portion being imported from China. Similar 
situations exist for a multitude of other consumer products used every 
day by hardworking American families. If such ``remedies'' are imposed, 
those remedies would amount to a huge new tax on hardworking American 
families--at a time when many of these families can least afford it.
    Finally, such actions could actually hurt the very U.S. 
manufacturing base these measures are supposedly trying to protect. 
Regrettably, recent history has repeatedly demonstrated this fact. Our 
members' products--U.S.-made apparel and footwear--figured prominently 
on foreign country retaliation lists in both the WTO dispute over 
Foreign Sales Corporations (FSC) and in the WTO dispute over the Byrd 
Amendment. These punitive measures severely crippled what remains of 
the U.S. apparel and footwear manufacturing industries as it 
essentially closed their primary export market to U.S.-made footwear 
and apparel--Europe. In this case, China is one of the largest and 
fastest growing markets for U.S. exports of all types--from yarn and 
fabric to machinery and high technology products and from cotton and 
soybeans to poultry.
    The U.S. apparel and footwear industry recognizes that many 
important issues exist in the U.S.-China relationship--issues that 
directly affect U.S. apparel and footwear firms. However, as in the 
case of our industry, the relationship between the United States and 
China is one that is critically important to and intimately intertwined 
with the U.S. economy. Therefore, I urge policymakers to carefully 
consider all aspects of this vital and complicated relationship before 
setting new policy.

                                 
             Statement of American Iron and Steel Institute
    The American Iron and Steel Institute (AISI), Committee on Pipe and 
Tube Imports (CPTI), Specialty Steel Industry of North America (SSINA) 
and Steel Manufacturers Association (SMA)--who together account for 
almost all of the carbon and specialty steel produced annually in the 
United States--are pleased to submit written comments to the House Ways 
and Means Committee on the urgent need to enact strong, effective China 
trade legislation this year.
The Case of Steel is One Example of How China Does Not Play by the 
        Rules in Its Trade and Economic Policy
    In recent years, as has been well documented, America's steel 
industry has dramatically enhanced its global competitiveness by 
virtually every account--be it labor productivity, energy intensity, 
environmental performance or cost. At the same time, there has been a 
considerable amount of market-driven consolidation in our steel 
industry. Unfortunately, we cannot count on market-driven factors, 
including consolidation, to save us from non-market behavior.
    Trade-distorting practices and non-market behavior have to be 
countered because, if they are not, they will destroy even the most 
competitive U.S. industry.
    On previous occasions, we have testified to the Committee on how 
the government of China has used a deliberate combination of 
administrative, legal, fiscal and other industrial policy tools to:

      Micromanage the future development of the Chinese steel 
industry;
      Maintain government ownership, control and direction of 
major steel producing companies;
      Support new and old steel capacity with massive 
subsidies;
      Target tax policy to promote exports of value-added steel 
products;
      Restrict exports of vital raw materials and steelmaking 
inputs;
      Limit foreign ownership of Chinese steel companies;
      Keep the yuan as the world's most undervalued major 
currency.

    The end result is that that:

    China today has by far the world's largest steel industry (nearly 
five times as large as the steel industry of the United States), with 
19 of its top 20 steel producers still majority-owned by the 
government;
    It has the world's most heavily subsidized steel industry (see 
attached new study, entitled Money for Metal: An Examination of Chinese 
Government Subsidies to its Steel Industry);
    It has enormous overcapacity in steel (more excess capacity than 
the entire American steel industry), with huge amounts of obsolete, 
inefficient, heavily polluting steel capacity;
    It has become the world's largest steel exporting nation, with a 
net shift of approximately 70 million metric tons (MT) in its steel 
trade position just since 2003;
    Its surging steel exports, which include many high value products, 
are causing significantly injury in the United States and disrupting 
steel markets worldwide;
    This same mercantilist development ``model'' is being consciously 
extended downstream not only to pipe and tube, fencing and other 
products made entirely of steel, but also to motor vehicles, auto 
parts, appliances and other steel-intensive manufactured goods.
    Contrary to popular conception, China is not a low-cost producer in 
steel. It faces many challenges from the high cost of iron ore imports, 
to energy and water shortages, to infrastructure bottlenecks, to 
environmental concerns. However, it has one big artificial competitive 
advantage: its willingness to use subsidies and other tools of 
industrial policy to promote steel and other key sectors of the Chinese 
economy.
    As many China watchers have observed, including the U.S.-China 
Security and Review Commission, this mercantilist approach to economic 
development has serious adverse implications for U.S. national 
security, food and product safety and the global environment.
    For example, China today produces over 50 percent of the global 
steel industry's emissions of greenhouse gases, according to the head 
of the International Iron and Steel Institute (IISI). Yet, because many 
environmental regulations are not adequately enforced or enforced at 
all in China, pollution itself is being used as an artificial 
``comparative advantage'' in China, one that is not subject to WTO 
rules.
    This same point can be applied to other manufacturing industries in 
China, and this is one more example of why--when we make efforts at 
``leveling the playing field'' and addressing global issues that leave 
China out--we are making a huge mistake. China has to be included.
Domestic Manufacturing Flight
    Against the backdrop of a record and unsustainable U.S. current 
account deficit (over $800 billion last year) and a record U.S.-China 
bilateral trade deficit (over $230 billion in 2007), we have lost more 
than 3 million good domestic manufacturing jobs since 2000, and 
America's manufacturing sector remains in crisis.
    China has not become ``the world's factory'' by accident. In recent 
years, we have seen a trend of domestic steel industry customers moving 
their operations to China in part. Some may be moving because of the 
current artificial steel price differential that exists between China 
and the rest of the world. In addition, many are no doubt moving 
because of Chinese government subsidies (including currency 
misalignment).
    Chinese government subsidies and China's use of industrial policy 
tools should not be the reason we are losing our domestic customers and 
jobs. Yet, this is exactly what has been happening in China, and it is 
also perhaps one of the reasons why the U.S. Administration has a 
pending World Trade Organization (WTO) action against China's 
prohibited subsidies. These particular types of industrial policy 
subsidy programs have been going largely to foreign-invested 
enterprises in that country.
    Government subsidies and all of the other administrative, legal and 
fiscal tools that China employs, as part of industrial policy to build 
up the ``strategic'' sectors of its economy, are not only harming 
America's steel industry, they are also causing massive job losses and 
serious damage to our manufacturing base, our economy and our national 
security.
    In what ought to be a disturbing trend to all U.S. policy makers, 
the United States has a skyrocketing ``indirect'' steel trade deficit 
with China (our bilateral trade deficit with China, expressed in tons 
of steel). The steel content of U.S. manufactured goods imported from 
China more than doubled between 2001 and 2006 and, today, over one-
third of all U.S. imports of downstream products made entirely of steel 
come from China.
    To us, it matters little whether the subsidized steel is distorting 
the market as a coil of corrosion-resistant steel or as a shipload of 
appliances. Neither the domestic steel producer nor its domestic 
manufacturing customer is ever going to be able to compete with Chinese 
government subsidies and mercantilist policies without the full and 
aggressive enforcement of U.S. trade laws.
We Need a New Trade Policy Model and All Available Tools to Address 
        China's Trade-Distorting, Non-Market Behavior
    The U.S.-China trade relationship is the single-most important 
trading relationship for the United States in the 21st century, and we 
had better get it right. As our annual bilateral trade deficit with 
China approaches the politically unsustainable figure of a quarter of a 
trillion dollars, America's steel industry believes that we need 
urgently to develop a new policy model of dealing with China trade 
problems.
    We support, as initial first steps in the right direction, the 
recent U.S. government policy moves to apply countervailing duty (CVD) 
law to imports from China and to pursue WTO actions against China, 
including its continued use of prohibited, WTO-illegal subsidies. 
However, there are additional concrete actions that must be implemented 
this year if we are to avoid a worsening trade crisis with China. These 
include the need to:
    Recognize that it is long past time to rebalance our vital trade 
remedy laws, which have been progressively weakened over the years by 
(1) over-reaching WTO Appellate Body rulings, (2) incorrect U.S. court 
decisions and (3) the failure of the Executive Branch to use 
effectively all of the tools (such as Section 421) that do exist;
    Maintain, strengthen and enforce rules-based free trade;
    Counter, under U.S. trade remedy laws, the pernicious practice of 
government interventions that result in fundamental currency 
misalignment, starting with China.
    If we are to address China's continued failure to play by the rules 
in international trade, we will need all available tools--and the 
political will to use them.
What the Ways and Means Committee Should Do Now
    America's steel industry urges the Committee to report out 
effective China trade legislation as soon as possible. As a first step, 
we recommend that the Committee report out legislation that addresses 
the following key issues:
    Full and strict application of CVD law to imports from China and 
Congressional oversight of any change in China's status as a non-market 
economy--i.e., the Davis-English bill (H.R. 1229) as introduced. 
Notwithstanding the preliminary Department of Commerce (DOC) ruling to 
apply CVD law to imports from China, there is a clear need for the 
Congress to clarify that CVD law must be fully and strictly applied to 
China (no weakening amendments, regulations or approaches). In 
addition, by virtually any measure under the existing U.S. statutory 
criteria, China today remains a non-market economy (NME), so there must 
be no change in China's NME status under U.S. AD law until it is able 
to satisfy fully and consistently all statutory criteria.
    Trade law rebalancing, starting with the vital Barrett bill (H.R. 
2714), which corrects two over-reaching and erroneous trade law 
weakening rulings--one by the WTO Appellate Body on ``zeroing'' and one 
by the U.S. Court of Appeals for the Federal Circuit on International 
Trade Commission (ITC) injury considerations. First, the Barrett bill 
suspends the flawed WTO zeroing rulings that the U.S. Administration 
now says must be addressed before the United States would even accept 
an overall Doha Round agreement. These WTO rulings against the U.S. AD 
law practice of zeroing must be rejected, because they would reward 
dumping, harm U.S. producers and greatly reduce AD margins. Second, the 
bill removes an excessive burden placed on U.S. producers harmed by 
unfair trade by addressing the flawed ``Bratsk'' ruling by the U.S. 
Court of Appeals for the Federal Circuit. That ruling would require 
that the ITC speculate on the effects of ``non-subject'' imports on the 
remedy, which would greatly reduce the number of affirmative injury 
decisions.
    Congressional oversight of Administration Section 421 decisions. 
When the Congress granted China Permanent Normal Trade Relations (PNTR) 
status, it expected the United States to have a useable special China 
``safeguard'' provision to address market disruption caused by China 
import surges. Unfortunately, the record is now four affirmative ITC 
market disruption findings in Section 421 cases and zero remedy 
decisions by the President. It is now up to the Congress to ensure that 
Section 421, which is a critical trade remedy tool, is useable again.
    Countering fundamental currency misalignment under U.S. AD/CVD law. 
The United States can no longer afford to sit back and allow China to 
continue--because of currency undervaluation alone--to apply a 40 
percent subsidy on all of its exports and a 40 percent tax on all of 
its imports. The time for talk and patience is over. We need to enforce 
our rights under the WTO and address China's fundamental currency 
misalignment. The steel industry supports the Ryan Hunter bill (H.R. 
2942) and any other effective means of addressing this serious problem 
under U.S. trade remedy law.
    There are times when our government must ``intervene'' to defend 
and restore market forces. This is the purpose of our trade remedy 
laws. Government intervention to restore market forces is essential if 
we are to have any semblance of rules-based trade and a level playing 
field that will enable efficient U.S. companies to win out in the 
marketplace.
    We know that legislation to address the specific trade law concerns 
cited above is just a start if we are to reverse the damaging trends of 
recent years. We urge the Committee to look carefully at all bills to 
reform and strengthen trade laws, including the provisions contained in 
Rep. English's Trade Law Reform Act (H.R. 708).
    We also know that trade law strengthening is only a part of the 
solution, as the United States must also (1) get its own fiscal house 
in order, (2) reform its healthcare system which is in crisis and (3) 
address other major international inequities.
    A good place to start would be to say ``enough is enough'' to the 
WTO's continued disparate treatment of direct vs. indirect taxes in 
terms of border-adjustability. The United States can no longer afford a 
world trading system in which the trade-related rules on taxation are 
rigged totally against us. Under this fundamental tax inequity, other 
major trading countries can rebate their indirect value-added taxes 
(VATs) on all of their exports and apply them to all of their imports, 
while the U.S. (which continues to rely mainly on corporate and other 
direct taxes, and does not use VATs) is prevented from adjusting its 
own taxes at the border.
    The key point we would like the Committee to keep in mind is that, 
while other countries are continuing to use a full array of industrial 
policy measures to promote their manufacturing industries, U.S. 
manufacturers have only our trade remedy laws. These laws have been 
under constant attack for years by foreign governments, foreign 
producers and a WTO that has repeatedly exceeded and abused its 
authority in trade case appeals. Therefore, as the Committee proceeds 
to mark up on China trade legislation, we urge that it send the 
strongest possible message on trade laws to China and other rules 
violators.
Conclusions
    Steel has been a prime, but not the only, example of what is wrong 
in the U.S.-China trading relationship, including not just the 
government subsidies, but also a lack of transparency and an incomplete 
transition to the rule of law and a continuation of political influence 
to determine trade and market outcomes. The inescapable conclusion is 
that China remains a non-market economy and, if we are to address 
effectively China's non-market and trade distorting behavior, our 
Nation must have all available tools, including:
    Applying CVD law fully and strictly to subsidized imports from 
China and other NMEs;
    Treating China as an NME under our AD law;
    Having an AD law that is not severely and unnecessarily weakened by 
over-reaching and erroneous rulings by the WTO or U.S. courts;
    Applying Section 421 remedies to disruptive and harmful imports 
from China when appropriate;
    Countering China's currency misalignment under AD/CVD law.
    Steel and other industries that rely on trade remedy law to help 
level the playing field are convinced that--while strong and strictly 
enforced trade laws are not the sole or total solution they can and 
will make a significant difference in helping to correct our record 
bilateral trade imbalance with the People's Republic of China.
    In our view, there is no alternative but to use and enforce the 
existing laws and to strengthen these laws up to their WTO allowable 
limits. Therefore, steel joins with other trade law-using U.S. 
industries in urging the Committee to report out a strong China trade 
bill that addresses the issues cited in this submission.
    America's steel industry appreciates the opportunity to provide 
comments on this critical issue.

                                 
       Statement of American Manufacturing Trade Action Coalition
    AMTAC's mission is to preserve and create American manufacturing 
jobs through the establishment of trade policy and other measures 
necessary for the U.S. manufacturing sector to stabilize and grow. 
Right now, U.S. domestic manufacturing is destabilized and its 
prospects for long-term health and growth are gravely threatened. 
Consider the facts. The United States has lost more than three million 
manufacturing jobs since the beginning of 2001. Moreover, the United 
States is on pace to run a trade deficit with China is excess of $270 
billion (more than $280 billion in manufactured goods) in 2007. It is 
urgent, therefore, that the U.S. Congress adopts a comprehensive policy 
response to combat China's unfair, mercantilist trade practices.
Parameters for Legislative Solutions to the China Trade Problem
    In crafting a policy response to counter China's active threat to 
U.S. manufacturing, it is critical for the U.S. Congress to keep two 
key points in mind.
    First, no one U.S. policy on trade caused the massive U.S. trade 
deficit and resultant U.S. manufacturing job losses; and no single 
policy response will undo the damage. A comprehensive policy approach, 
therefore, is necessary to level the playing field for U.S. 
manufacturing.
    Second, the U.S. Congress must recognize that it cannot compel 
China's authoritarian government to take any policy action. Asking 
China to enact policy that it believes to be against its own interest 
is a prescription for failure, as China will never take any such 
action. Instead, the U.S. Congress should direct policy solutions 
toward what it can control. Given its authority under Article I, 
Section 8 of the U.S. Constitution to regulate foreign commerce, what 
the U.S. Congress can control is what foreign commerce can enter the 
United States, under what terms and conditions. Only by using its power 
to regulate imports from China, can the U.S. Congress exercise the 
necessary policy leverage to persuade China that its own interest lay 
in abiding by a level playing field in trading with the United States.
    Noting these parameters, several bills lay before Congress within 
the scope of this hearing that would tie China's access to the U.S. 
market to China eliminating its unfair trade practices.
Legislative Solutions to Combat Fundamental Currency Misalignment
    The damage caused by China's persistent fundamental misalignment of 
its currency is well known. Of all the bills introduced in Congress, 
the Currency Reform for Fair Trade Act of 2007, H.R. 2942 introduced by 
Congressmen Tim Ryan (D-OH) and Duncan Hunter (R-CA), offers the most 
comprehensive solution to combat China's fundamental currency 
misalignment--a misalignment that undervalues China's currency by as 
much as 77 percent when applying the standard Purchasing Power Parity 
(PPP) technique to official IMF statistics.
    H.R. 2942 aims to remove subjectivity from currency valuation 
determinations by injecting transparency and objectivity into this 
important process. Under the bill, injured U.S. companies will be 
provided with key enforcement tools to fight back against foreign 
companies whose governments have sought to create an artificial 
competitive advantage through currency valuation controls:

      The bill makes clear that Countervailing Duties rules 
apply to non-market economy countries.
      The bill provides that ``fundamental and actionable 
misalignment of a currency'' may be considered as a prohibited export 
subsidy in determining if a duty should be imposed in a Countervailing 
Duty (CVD) case.
      If a company wins an anti-dumping order or is the 
beneficiary of an existing anti-dumping order in place, the amount of 
the prohibited export subsidy will be added to the dumping margin.

      The bill inserts objectivity into currency value 
determinations by building upon current law that requires the Treasury 
Department to report ``currency manipulation'' by also requiring semi-
annual reporting on the existence of a ``fundamental misalignment'' of 
currencies. A finding of the existence of a fundamental misalignment is 
based on objective facts. It does not require the Treasury Department 
to guess a country's intent, as is the case with the current law 
requiring reporting on currency manipulation.
      The bill eliminates broad waiver loopholes that could be 
used by the Executive Branch to gut the enforcement mechanisms 
contained in the legislation.
      Finally, the legislation is WTO consistent because it 
applies to any country engaging in currency manipulation or 
misalignment.

    The critical component of H.R. 2942's effectiveness is that it 
would allow U.S. manufacturers to file petitions asking for 
countervailing duties to penalize foreign manufacturers, like those 
from China and Japan, benefiting from currency misalignment.
    If H.R. 2942 were to become law and one company or industry were to 
win a countervailing duty case (for example, winning a ruling that 
China's currency was 40 percent undervalued), it would set a precedent. 
More than likely, nearly every industry would follow with similar 
petitions against imports benefiting from the offending currency, 
knowing that a similar penalty would likely result against their 
foreign competitors benefiting from currency manipulation. With the 
certainty of the approval of dozens of CVD petitions imminent, the 
offending country's own exporting companies will demand that their 
government approach the United States to negotiate an orderly, 
incremental transition of that currency to float openly on the market.
    The omission of a CVD trade remedy dramatically would decrease any 
potential effectiveness of anti-currency misalignment legislation. As 
such, AMTAC prefers anti-currency misalignment proposals like H.R. 2942 
that contain CVD remedies over those that do not, assuming there are no 
other loopholes in the legislation.
    Moreover, any anti-currency misalignment legislation must compel 
the Executive Branch to act when fundamental currency misalignment 
exists, as does H.R. 2942. Proposals that contain broad waiver 
authority will not be nearly as effective as those without a broad 
authority. Any waiver authority granted almost certainly will be 
exercised by the Executive Branch--especially considering its 
persistent refusal to make the prerequisite finding of intent necessary 
to cite a country as a currency manipulator under current law.
Legislative Solutions to Combat the Disadvantage Caused by China's VAT
    In addition to addressing the currency issue, Congress also must 
address the disadvantage to U.S. producers and service providers caused 
by the imposition and rebating of foreign border-adjusted taxes, mostly 
in the form of value-added (VAT) taxes. When identifying the causes of 
the uneven playing field and its attendant massive U.S. trade deficit 
and manufacturing job losses, border-adjusted tax schemes stand out as 
one of the very worst offenders.
    In 2005, the imposition and rebating of border-adjusted taxes 
disadvantaged U.S. producers and service providers by an estimated $379 
billion. U.S. trade with China in goods alone accounted for an 
estimated $48 billion of that disadvantage.
    China levies VAT taxes on imports from the United States and 
generally rebates any VAT paid by producers in China on exports to the 
United States. As China's VAT rate in 2005 was 17 percent, these 
impositions and rebates have a significant impact on a good's price.
    In contrast, the United States levies no similar taxes at the 
border on Chinese imports. Producers in China selling in the United 
States pay neither U.S. income and payroll taxes nor their own VAT. As 
a result, this severely tilts the playing field and places U.S. 
domestic manufacturing at a great competitive disadvantage.
    When the predecessor of the World Trade Organization (WTO) was set 
up in the late 1940s in the form of the General Agreement on Tariffs 
and Trade (GATT), one of its major policy purposes was to reduce the 
distortions to free trade flows inherent in import tariffs and export 
subsidies.
    Over the years the use of border-adjusted taxes assessed on imports 
and rebated on exports has grown into a major violation of that core 
purpose. From one nation, France, with a relatively small level of such 
import taxes and export rebates, the system has grown out of control. 
Now, 150 nations, including China, use border-adjusted tax schemes to 
evade the GATT's original intent and inflict trade deficits on the 
United States.
    Fortunately, a distinguished member of the Subcommittee on Trade, 
Congressman Bill Pascrell (D-NJ), along with Congressmen Duncan Hunter 
(R-CA), Mike Michaud (D-ME), and Walter Jones (R-NC) have introduced 
legislation, the Border Tax Equity Act (H.R. 2600), that would stop the 
charade and force other countries, including China, to abandon these 
distortions.
    H.R. 2600 would direct the United States Trade Representative 
(USTR) to negotiate a remedy for the VAT inequity on goods and services 
within the World Trade Organization (WTO) by January 1, 2009; and,
    If there is no negotiated solution by that specified date, the 
United States then (1) would charge an offsetting assessment at the 
U.S. border on imports of goods and services equal to the amount of VAT 
rebated to the exporters by the country with a VAT. In addition, (2) 
the United States would issue rebates equal to the amount of VAT taxes 
paid by U.S. exporters on goods that have VAT taxes imposed upon them 
by other countries.
    As an early incentive to produce a negotiated remedy within the 
WTO, if USTR fails to certify that VAT disadvantage has been eliminated 
by January 1, 2008, the United States would issue rebates equal to the 
amount of VAT taxes paid by U.S. exporters on services slapped with VAT 
taxes when they reach the border of a country imposing VAT taxes. 
Because such export rebates on services are not prohibited under 
current WTO rules, imposition of this offsetting measure should not 
await revision of WTO rules.
Additional Legislation Needed to Combat Other Unfair Chinese Trade 
        Practices
    In addition to passing legislation to combat China's fundamental 
currency misalignment and unfair border taxation scheme, AMTAC supports 
congressional efforts to ensure: the safety of U.S. food and consumer 
product imports from China
    that China adequately enforces the intellectual property rights of 
U.S. companies
    that China abides by environmental standards
    that China desists from using slave labor and engaging other abuses 
of worker rights.
Quick Facts on U.S. Manufacturing Employment, Deficit, and Markets

      According to the U.S. Bureau of Labor Statistics, 
seasonally-adjusted employment in U.S. manufacturing fell from 17.285 
million to 14.047 million between January 2000 and June 2007--a loss of 
3.238 million jobs.
      The U.S. Government also reported that the U.S. trade 
deficit reached an all-time high of $763.6 billion in 2006, smashing 
the previous record of $717 billion in 2005.
      With China, the U.S. trade deficit jumped from $202 
billion in 2005 to $232.5 billion in 2006. The U.S. trade deficit with 
China is on pace to exceed $270 billion in 2007.
      For manufactured goods in 2006, the U.S. trade deficit 
jumped to $525.8 billion, up from $504 billion in 2005. With China, the 
U.S. trade deficit in manufactured goods was $238 billion in 2006, up 
from $205 billion in 2005.
      Since 1993, U.S. demand for Durable Goods and Non-Durable 
Goods has risen by 135 percent and 47 percent, respectively. Despite 
the healthy growth in demand, imports (often heavily subsidized) have 
cut heavily into domestic market share as U.S. production of Durable 
Goods only grew by 68 percent and Non-Durable Goods grew by just 18 
percent. Consequently, U.S. domestic manufacturing only has captured 51 
percent of growth in demand for Durable Goods and a paltry 39 percent 
of growth in demand for Non-Durable Goods since 1993.

Conclusion
    It is imperative to the immediate health and long-term survival of 
U.S. manufacturing that Congress adopts a comprehensive policy response 
to confront China's unfair trade practices. Quick passage of H.R. 2942 
and H.R. 2600 would be one key step toward effectively implementing 
that response. Thank you for your consideration of our views on these 
important matters.

                                 
              Statement of Congressman J. Gresham Barrett
    Mr. Chairman, thank you for inviting me to testify today. Your 
knowledge of the range of China trade and trade remedy issues that I am 
about to testify on is unrivaled in the House. We all appreciate your 
leadership on these issues and hope that a strong trade bill that 
levels the playing field with China will pass out of the Ways and Means 
Committee and be ultimately enacted into law this fall.
    As this Committee seeks to strengthen our trade laws to better 
address China's unfair trade practices, it is essential that any 
legislation it considers include measures to redress harmful decisions 
from the World Trade Organization (WTO that are already eroding the 
effectiveness of our fair trade laws. That's why I am going to focus my 
testimony on H.R. 2714, legislation that I introduced in June. H.R. 
2714 is designed to remedy a series of adverse WTO decisions that have 
gone beyond the mandate of that organization and if fully implemented 
will undermine America's ability to restore a fair trade relationship 
with China. More specifically, this bill supports Bush Administration 
policy to reverse these problematic decisions and restore the rights 
and obligations that the U.S. negotiated at the WTO and that Congress 
created in U.S. law.
    Several colleagues have been instrumental in the introduction of 
this bill. I salute and appreciate the work of my lead cosponsor, 
Congressman Richard Neal of this Committee. He is a strong support of 
using our trade remedy laws to address the unfair trading practices of 
our foreign competitors and I am glad to have him on board. We both 
understand that Congress must seize this opportunity to defend our 
trade laws from mis-guided and overreaching decisions from the WTO. 
America cannot add new tools to the toolbox, while at the same time we 
allow other tools to become rusty and useless.
    It is important that we take this opportunity to bolster our trade 
remedy laws that already apply to China where they have been undermined 
by misguided decisions from international bodies.
    In this testimony I will address two sets of decisions of 
particular concern. The first set of decisions, handed down by the WTO, 
will require the U.S. to give foreign producers credits against dumping 
and prevent us from measuring and redressing the full amount of dumping 
that harms our domestic industries and workers. These decisions have 
been roundly criticized for imposing obligations that the U.S. never 
agreed to in WTO negotiations. These so-called ``zeroing'' decisions 
are of particular concern regarding China, since Chinese imports have 
accounted for the majority of imports subject to antidumping 
investigations in the United States in the last three years, and nearly 
85% of imports subject to new antidumping orders in that same time 
period have come from China. The second decision, the Bratsk decision 
from the Court of Appeals for the Federal Circuit, creates a new 
obstacle (with no basis in U.S. law) to industries that must show they 
have been injured by unfair foreign trade. I will address both of these 
decisions in more detail below.
    When a court develops an interpretation of a law that departs from 
the original intent of Congress, the only way for Congress to fix the 
problem is to clarify its intent by passing new legislation. Similarly, 
if a WTO decision creates new obligations that countries did not agree 
to, WTO Members can negotiate with one another to clarify their rights 
and obligations. Congress, in the Trade Act of 2002, recognized this 
problem when it mandated that the problem of WTO decisions creating 
obligations never agreed to by the United States be addressed in 
multilateral negotiations. My colleagues and I are deeply concerned 
that these troubling decisions that will seriously undermine U.S. trade 
remedy laws unless Congress takes corrective action.
    We urge you to include the provisions of H.R. 2714 in any China 
legislation that goes through this Committee in order to ensure that 
those legal tools that we already have to combat China's unfair trade 
practices remain as strong and effective as Congress originally 
intended.
Zeroing
    For decades, the U.S. has followed a methodology that allows it to 
impose antidumping duties equal to 100% of the dumping occurring in our 
market. In WTO negotiations, the U.S. worked hard to preserve this 
methodology and rejected other countries' attempts to undermine it. The 
U.S. Congress voted to approve the WTO agreements with the 
understanding that they would not weaken this traditional practice 
under U.S. trade remedy laws.
    Now, a series of recent WTO Appellate Body decisions require the 
U.S. to abandon this well-established methodology and to instead give 
``credits'' to imports that are not dumped. Granting these ``credits'' 
will mask the full amount of dumping that is taking place and greatly 
reduce the effectiveness of our trade remedy laws.
    The Administration has recognized that these adverse decisions 
impose obligations that our negotiators never agreed to at the WTO. The 
Administration has called the decisions ``devoid of legal merit.'' 
While part of these decisions has been implemented, some aspects still 
await implementation by the U.S. In the meantime, in recognition of the 
serious harm these decisions will cause, the Administration has asked 
our trading partners to negotiate on this issue to clarify the original 
intent of the WTO agreements. Only when such clarification is achieved 
will all WTO parties be assured that they can use their trade laws to 
effectively remedy all of the unfair dumping injuring their domestic 
industries.
    Our negotiators in Geneva need all of the leverage they can get to 
succeed in these negotiations. Our bill will would provide them with 
this leverage by mandating that the Administration seek clarification 
of its rights in the ongoing WTO negotiations before implementing any 
of these adverse decisions. By delaying implementation (and by rolling 
back implementation where it has already begun), the U.S. can safeguard 
our trade remedy laws and negotiate with our trading partners to ensure 
U.S. rights are clearly protected under WTO rules.
Bratsk
    When an antidumping or countervailing duty case is brought, orders 
can only be imposed if it is found not only that unfair trade is 
occurring but also that such trade is injuring the domestic industry. 
In a 2006 decision, the Court of Appeals for the Federal Circuit 
created a new additional test that must be satisfied before orders can 
be imposed. Under its decision in Bratsk, the court decided that the 
domestic industry needs to show not only that the unfairly traded 
imports at issue are currently causing injury, but also that, if orders 
are imposed, the domestic industry will benefit from the orders and 
imports from countries not subject to the orders will not eliminate any 
such benefit. The decision imposes a new test that is not part of the 
law Congress enacted. The International Trade Commission has already 
had to reverse an affirmative determination in one case to comply with 
the test imposed by the Court. In its reversal, the Commission noted 
its strong disagreement with the Bratsk test, stating that it had no 
basis in the statute.
    This Court decision creates a nearly insurmountable obstacle for 
U.S. producers seeking relief from unfairly traded imports and forces 
the International Trade Commission to undertake a costly and difficult 
new analysis before granting relief. Our bill would restore the 
original intent of Congress by clarifying the injury standard and 
reversing this erroneous decision.
    Thank you for this opportunity to speak with you today on this very 
important matter.

                                 
               Statement of Congresswoman Jan Schakowsky
    The Energy and Commerce Committee has held numerous hearings 
concerning the safety of imported food, prescription drugs, children's 
products, toys, and other products from China. The Subcommittee on 
Oversight and Investigations has found that food imported from China 
poses a threat to American consumers. A flurry of press coverage 
earlier this year revealed that melamine-tainted wheat gluten from 
China contaminated pet food and animal feed. Similar stories recently 
have shown that fish raised on Chinese farms are fed dangerous 
quantities of antibiotics but are allowed to enter our markets. Despite 
these major public health dangers, we have found that the understaffed 
and poorly managed Food and Drug Administration screens only a tiny 
amount of the food we import and has not kept our food supply safe. The 
same is true and even worse concerning the Consumer Product Safety 
Commission and products under its jurisdiction. I hope that we will be 
able to change this frightening reality to protect the American food, 
drug and product supply.
    The Energy and Commerce Committee has also worked with the Ways and 
Means Committee to address the problem of Chinese trade imbalances and 
currency manipulation. As was asserted in the joint hearing on currency 
manipulation held on May 9, 2007, China artificially undervalues the 
renminbi (RMB) by 15 percent to 40 percent. The United States also has 
a large and growing trade deficit with China--$232.6 billion in 2006. 
Members of Congress and many prominent economists have sighted that 
trade imbalance and Chinese currency undervaluation as major problems 
for the United States economy. Even President Bush said in Toledo in 
2004, ``We expect countries like China to understand that trade 
imbalances mean trade is not balanced and fair. They have got to deal 
with their currency.'' The drastic undervaluation of the RMB keeps 
American export industries from competing fairly with their Chinese 
counterparts. This unfair trading advantage for China promotes the 
consumption of their exports, while suppressing the consumption of 
American imports.
    In light of the overwhelming evidence that China's currency 
valuation is hurting the American economy and causing the loss of jobs, 
we must take immediate action. Unfortunately, despite protestation from 
Congress and well-respected economists, the Treasury Department refuses 
to cite China as a currency manipulator. Because of their inexcusable 
inaction, Congress must enact legislation that would require the Bush 
Administration to address unfair currency manipulation by China and 
other countries. I support the efforts of all of the members of 
Congress who have introduced legislation to combat currency 
undervaluation. I hope that we will be able to pass legislation this 
Congress that will force the Bush Administration to hold China 
accountable for its unfair trading practices.
    Again, thank you for convening this important hearing on U.S.-China 
trade and Chinese currency undervaluation. I hope that the Energy and 
Commerce Committee and the Ways and Means Committee will continue to 
work together to develop effective ways to reform United States trade 
law.

                                 
                 Statement of Consumers for World Trade
    On behalf of Consumers for World Trade (CWT), I am writing to 
express our concerns over apparent efforts to re-write our trade remedy 
laws that would pass on large costs to American consumers, including 
the neediest of American families, while also potentially exposing the 
U.S. to challenges before the World Trade Organization. Specifically, 
we are alarmed by legislation referred to the Committee on Ways and 
Means that would correct perceived currency manipulation, as well as 
call on the Department of Commerce to ignore the extent of fairly 
traded imports when calculating antidumping duties.
    By way of background, CWT is a national, non-profit, non-partisan 
organization, established in 1978 to promote the consumer interest in 
international trade and to enhance the public's awareness of the 
benefits of an open, multilateral trading system to everyone's daily 
life. CWT is the only consumer group in America whose sole mission is 
to educate, advocate and mobilize consumers to support trade-opening 
legislation.
I. Currency Reform
    Several pieces of legislation referred to the Committee 
specifically call on the Department of Commerce to calculate 
antidumping margins using exchange rates that are adjusted to take into 
account the extent of perceived currency ``misalignment'' or 
``manipulation'' as determined by the Department of the Treasury. 
Provisions of these bills also call for the application of 
countervailing duty law against non-market economies such as China and 
Vietnam, and specifically define currency manipulation or 
``misalignment'' as countervailable subsidies. Taken together, these 
provisions are likely to be found inconsistent with our international 
trade obligations. The bills we have seen impose these additional 
burdens on exports and American consumers without considering whether 
they are addressing ``subsidies'' or whether they are counting the 
benefit of a subsidy twice--through concurrent antidumping and 
countervailing duty cases on the same product. At a minimum, to protect 
American consumers from excessive taxation, the allowance of 
antidumping and countervailing duties on products of non-market 
economies must direct the administering authority to prevent such 
double-counting.
    Article 2.4.1 of the World Trade Organization (WTO) Agreement on 
Anti-dumping states that antidumping margins must be calculated using 
currency conversions set by currency markets and not arbitrary 
estimates set by the administering authorities. Today, there is not a 
widely established and accurate benchmark to determine the extent by 
which a currency deviates from its ``market'' value. Calculating 
antidumping margins to take into account currency manipulation could be 
determined as in violation of international trade rules and the U.S. 
could be taken before the WTO's dispute settlement panel. If the panel 
finds that these provisions violate WTO rules, many U.S. exporters 
could face high retaliatory tariffs from our trading partners, 
including China, our fastest growing export market.
    We recognize that U.S. trade remedies law is designed to protect 
domestic U.S. manufacturers from unfair foreign subsidies through 
higher duties placed on these foreign goods. However, those remedies 
must be applied in a way that conforms to U.S. obligations under 
international trade rules. In addition, it must be recognized that the 
import taxes imposed in these cases are frequently passed on to 
consumers through higher prices (indeed, these laws intend such a pass-
through). Over the past decade, a wide variety of consumer products 
have been sourced from non-market economies such as China and Vietnam. 
These imported products have allowed the neediest of Americans to 
afford a variety of basic goods for their families. In the event that 
both anti-dumping and countervailing duties are applied to the same 
imported product without correcting the double-counting problem, the 
resulting increase in price paid by U.S. consumers could erode these 
benefits through an unwarranted trade tax imposed on many hard working 
Americans.
II. Application of ``Zeroing'' in the Calculation of Dumping Margins
    We are also concerned with legislation requiring the Department of 
Commerce to ignore the impact on dumping calculations of export sales 
above ``normal value''--a practice referred to as ``zeroing''. As a 
consumer group, CWT strongly opposes the practice of ``zeroing,'' which 
uses dubious mathematical procedures to levy unfairly high hidden taxes 
on American consumers and consuming industries. Not only do these 
duties inflate the price of finished products for the end user, they 
threaten the livelihoods of workers in industries that must import 
their intermediary inputs, an increasingly important part of our 
manufacturing economy.
    The use of ``zeroing'' when calculating dumping margins also 
clearly violates our international trade commitments. Several World 
Trade Organization decisions have rejected the use of ``zeroing'' in 
applying anti-dumping margins. The continued use of the practice could 
lead our trading partners to apply high tariffs on U.S. exports as a 
punitive measure.
    The Department of Commerce already has the statutory authority to 
abandon the practice of zeroing without authorizing legislation or 
regulation. In fact, as of February 22, 2007, the Department of 
Commerce abandoned the practice in original investigations. Consumers 
for World Trade applauded the Department of Commerce on this decision; 
however, the assessment of duties after administrative reviews 
continues to employ the unfair practice of ``zeroing.'' We strongly 
urge Commerce to abandon ``zeroing'' in all cases, and for Congress to 
recognize that doing so would benefit U.S. consumers and the American 
economy.

                                 
          Statement of Emergency Committee for American Trade
    This statement is on behalf of the Emergency Committee for American 
Trade--ECAT--an association of the chief executives of leading U.S. 
business enterprises with global operations. ECAT was founded four 
decades ago to promote economic growth through expansionary trade and 
investment policies. Today, ECAT's members represent all the principal 
sectors of the U.S. economy--agriculture, financial, high technology, 
manufacturing, merchandising, processing, publishing and services. The 
combined exports of ECAT companies run into the tens of billions of 
dollars. The jobs they provide for American men and women--including 
the jobs accounted for by suppliers, dealers, and subcontractors--are 
located in every state and cover skills of all levels. Their collective 
annual worldwide sales total over $2.5 trillion, and they employ over 
six million persons. ECAT companies are strong supporters of 
negotiations to eliminate tariffs, remove non-tariff barriers and 
promote trade liberalization and investment worldwide.
THE U.S.-CHINA COMMERCIAL RELATIONSHIP
    The United States' commercial relationship with China is one of our 
most critically important and complex. It has produced both enormous 
economic gains and challenges for the United States. For example, China 
is the United States' fastest growing export market, growing 32 percent 
last year to $55.2 billion in goods exports.
    With 1.3 billion people, China will also be one of the most 
important world markets for decades to come, providing important 
economic opportunities to U.S. farmers, manufacturers, service 
providers and their workers. In 2006, China was the United States' 
third largest trading partner and could surpass Mexico in 2007 as the 
United States' largest trading partner in terms of total exports and 
imports. China continues to be the United States' fourth largest export 
market worldwide and its second largest source of goods imports. For 
China, the United States is its largest export market, followed closely 
by the European Union and Hong Kong. The United States represents 
China's fifth largest source of imports, after Japan, the European 
Union, Taiwan, and Korea. U.S. services trade with China has also grown 
substantially, to $9.1 billion in U.S. services exports to China in 
2005 and $6.5 billion in U.S. services imports from China in 2005. U.S. 
investment flows have expanded considerably to $16.9 billion in U.S. 
foreign direct investment in China in 2005.
    At the same time, China is the source of significant concern in 
some U.S. sectors, particularly over its lack of full enforcement of 
intellectual property rights, its discriminatory trade barriers and 
industrial policies, its lack of transparency and other issues.
    Following China's entry into the WTO on December 11, 2001, much of 
the focus of the U.S. commercial relationship with China has been on 
its implementation of its WTO commitments. China has made very 
significant progress in coming into compliance with many aspects of its 
WTO commitments, including:

      tariff reductions from a base of 25 percent to seven 
percent;
      reductions in non-tariff barriers, where China eliminated 
hundreds of WTO-inconsistent requirements;
      trading rights reforms for certain sectors, where China 
implemented its commitments six months early to allow companies to 
import and export directly;
      distribution rights reforms in 2005 for certain sectors, 
where China now allows foreign enterprises to distribute products 
within China;
      new regulations on foreign-invested insurance companies 
and the elimination of geographic restrictions on insurance company 
activity;
      TRQ implementation in 2004 for agricultural products 
which was finally brought closer in line with China's commitments; and
      expanded market access in a number of services areas.

    Despite China's substantial progress and reform, much more work 
needs to be done by the Chinese government to open its markets to U.S. 
goods and services and to implement China's WTO commitments. In 
particular, ECAT companies are concerned about the following key issues 
in the U.S.-China commercial relationship:

    Intellectual Property Rights Protection and Enforcement. While 
China's laws on the protection of intellectual property have been 
improving over time, although they still remain deficient in certain 
areas. Moreover, there remain substantial problems in China's 
enforcement of such protections. As a result, piracy and product 
counterfeiting continue to flourish in numerous sectors. China's 
protection of intellectual property is currently being reviewed in a 
WTO case filed by the United States.
    Government Procurement. At the 2006 U.S.-China Joint Commission on 
Commerce and Trade (JCCT) meetings with the United States, China 
committed to initiate formal negotiations to join the WTO Government 
Procurement Agreement (GPA) and to submit its initial offer of coverage 
by December 2007. Action in this area is critical to eliminate 
discriminatory practices that block U.S. participation in China's very 
substantial governmental procurement market, covering central and sub-
central government entities and state-owned enterprises.

      Industrial Policy. China continues substantial 
governmental intervention in the marketplace that impedes participation 
of U.S. and other foreign suppliers of goods and services through the 
use of unique standards and other barriers. For example, China's 
continues discriminatory preferences for domestic auto parts and 
technology, which are the subject of a U.S.-brought WTO challenge.
      Financial Services Liberalization. There has been 
positive reform of China's banking sector, including steps toward the 
elimination of the single-bank system, implementation of a viable 
commercial-lending system and the establishment of interbank, equity 
and forex markets. The issuance in November 2006 of Regulations for the 
Administration of Foreign-Funded Banks raised, however, additional 
issues, including inappropriate restrictions on incorporation and on 
the activities in which foreign banks can engage. As well, new 
restrictions were imposed in 2006 on foreign providers of financial 
news. Improvements have been slower in the insurance sector. However, 
it is encouraging to note that the CIRC, the Chinese insurance 
regulator, has taken steps to resolve the long-standing non-life 
subsidiary conversion issue. Discriminatory branch-licensing practices 
continue.
      Other Non-Tariff Barriers on Agriculture, Manufactured 
Goods and Services. China continues to maintain and create burdensome 
and opaque entry, regulatory, licensing, customs, customs valuation, 
and other requirements that place major barriers on agricultural, goods 
and services trade. While progress has certainly been made since 
China's entry to the WTO, many issues remain, such as China's 
Compulsory Certification (CCC), barriers to entry and investment, non-
scientific and non-commercial barriers in agricultural trade, and 
China's maintenance of a quota limiting screening to 20 foreign films.
      Transparency. While remarkable progress has been made 
from the opaque situation that most companies experienced 10 years ago, 
there remains uneven and inadequate transparency in the promulgation of 
governmental measures, standards, judicial proceedings and other 
governmental actions. Lack of full transparency undermines 
significantly the ability of U.S. companies seeking new or continued 
market opportunities in China.
      Discriminatory Taxation Policies. While China made 
progress in lifting its discriminatory tax rebate for certain 
semiconductors, it continues to maintain and erect discriminatory taxes 
and apply the value-added tax (VAT) in an uneven and discriminatory 
manner that undermines the ability of U.S. and other foreign companies 
to compete on a level playing field. The United States has brought WTO 
challenges to certain of China's tax policies that it believes 
constitute WTO-violative subsidies.
PROMOTING CONTINUED IMPROVEMENT IN THE U.S.-CHINA COMMERCIAL 
        RELATIONSHIP
    The United States' engagement with China and China's full 
participation in the global trading system, including China's 
commitment to and implementation of the rules of that system, are 
critical to promoting U.S. commercial interests, as well as promoting 
our country's broader interests in the rule of law and other key 
issues. How to improve the U.S.-China commercial relationship is the 
subject of numerous legislative proposals, Administration initiatives 
and academic and expert analyses. For the companies of ECAT, it is also 
the subject of their day-to-day business dealings, and their 
conversations with Congressional leaders and the Administration.
    While we provide below a more detailed analysis of some of the 
primary legislative proposals that the Committee on Ways and Means may 
consider, we offer here some general comments on key principles for 
ensuring that new initiatives promote positive change in the U.S.-China 
relationship. These approaches can oftentimes overlap and build upon 
each other and should not be viewed as mutually exclusive.

      Engaging Constructively. Progress in the United States-
China relationship requires, at a minimum, engagement at all key levels 
of government. Successive U.S. Administrations of both parties have 
established numerous government-to-government mechanisms and more seem 
to be developed each year. While there is some concern about 
overlapping jurisdiction and activities, more dialogue, rather than 
less, is important and has proven effective in making progress on a 
variety of issues. For example, the JCCT, first established in 1983, 
provides a high-level forum to address more immediate trade frictions 
and promote bilateral commercial opportunities. While not every meeting 
has produced significant progress, the JCCT has induced China to take 
additional steps to open its market to U.S. goods and services and is 
credited with moving China to begin by the end of this year formal 
negotiations to join the Government Procurement Agreement. Just last 
year, the United States and China initiated the Strategic Economic 
Dialogue (SED) to focus on more medium- and long-term issues to improve 
the bilateral relationship. While complaints exist that the SED has not 
produced immediate results, that was never its intent, since to do so 
would make it largely duplicative of the JCCT. Dialogue and engagement 
do not necessarily produce many short-term results, but are critical if 
the goal is to help promote enduring and significant reforms.
      Emphasizing Common Goals. Like any nation, China has and 
will be able and interested in moving most quickly on issues that are 
important from its own domestic perspective. Helping to recast issues 
as ones that the United States and China share a common interest in 
addressing is likely to be the most effective way to resolve certain 
issues. While this approach will not apply to all issues, it is 
increasingly seen as useful in the following types of areas:

    Intellectual Property Protection. China's own scientific, 
technological and artistic communities are increasingly interested in 
protecting their own intellectual-property-based works. As well, 
China's need to address health concerns as a result of poor regulatory 
oversight could increasingly foster improved protections for 
pharmaceutical products.
    Government Procurement. The Chinese government's own interest in 
high quality and cost-effective technology and other goods and services 
can increasingly promote their interest in moving forward in 
negotiations to join the WTO Government Procurement Agreement. 
Continued work by the U.S. Government and business in helping to 
identify China's own interests in joining that agreement could be 
useful.
    Trade in Environmental Goods and Services. China and the United 
States are actively discussing how to move towards eliminating tariff 
and other barriers to trade in environmental goods and services, which 
will enable China to increase its use of state-of-the-art products and 
services to address its environmental problems.
    Financial Reform. Many experts agree that China cannot allow a 
market valuation of its currency until it more fully reforms its 
banking and financial sector. While progress has been made in this 
area, it is also an issue that coincides with U.S. interest in greater, 
non-discriminatory access for financial-service providers to the 
Chinese market. More work in establishing common interests in this area 
could help address key issues for both China and the United States.
    Using Multilateral Mechanisms Strategically. It is also important 
for the United States to employ multilateral mechanisms where 
appropriate. Use of the WTO dispute-settlement mechanism to induce 
China's improved compliance with WTO rules represents a highly useful 
tool. As with other countries, use of the WTO dispute-settlement 
mechanism is most appropriate where there are clear-cut violations that 
can be persuasively demonstrated on issues of importance in the 
relationship. The United States was successful the first two times it 
raised WTO challenges with the Chinese government:
    Discriminatory Tax Treatment of Semiconductors. In March 2004, the 
Administration filed the first WTO challenge to China's actions, 
involving China's discriminatory tax treatment of U.S. semiconductors. 
After consultations in April 2004, the United States and China reached 
a mutually agreed settlement that addressed the United States' 
concerns.
    Antidumping Action Against U.S. Exports of Kraft Linerboard. Less 
than 24-hours after the United States indicated that it would be filing 
a WTO challenge to the Chinese imposition of antidumping duties on U.S. 
exports of kraft linerboard, the Chinese government completely 
rescinded the antidumping order, obviating the need for a formal WTO 
action.
    The United States has brought several other WTO cases against China 
and has, very importantly, won the support of other major trading 
partners in several of them. These cases involve:

        Chinese discrimination against imported automobile parts;
        Chinese subsidies;
        China's failure to enforce effectively intellectual property 
        rights; and
        China's market-access barriers.

    ECAT very much welcomes this approach, particularly the efforts to 
address market-access barriers both in specific industries and more 
generally and to promote better enforcement of intellectual property 
protections.

      Leading by Example. China's entry into the World Trade 
Organization in 2001 represented the culmination of years of effort to 
encourage China's commitment to the rules of the global trading system. 
China's accession was, however, really just the first step in the long 
and complicated process of ensuring that China implements those rules 
fully and effectively. To be effective in promoting China's full 
integration, however, requires the United States to lead by example and 
follow the rules-based WTO system it helped create. Proposing or 
implementing policies that directly contravene or are widely viewed as 
violating the United States' own international obligations sends a 
powerful message to the Chinese government that it can do the same. It 
is not effective in promoting change within China and, if imposed, 
would most likely harm U.S. credibility and commerce.

    Focusing on Key Issues. Congress has focused heavily on China's 
currency, and ECAT supports work to promote China's adoption of a 
market-valued currency. For ECAT companies, however, there are numerous 
important and immediate issues of concern, such as intellectual 
property protection, subsidies and industrial policy, transparency and 
market access, as noted above. Indeed, given China's large market, it 
would seem that more balance can best be achieved in the U.S.-China 
commercial relationship not by penalizing imports from China--which 
also penalizes many American consumers and companies--but by focusing 
on ways to improve access for U.S. farm and manufactured goods and 
services in China's market.
COMMENTS ON SPECIFIC LEGISLATIVE PROPOSALS
Currency Proposals (H.R. 2942)
    H.R. 2942, the Currency Reform for Fair Trade Act of 2007, seeks to 
address the negative impacts that fundamentally misaligned currencies 
may have on U.S. competitiveness through a variety of measures that 
would penalize imports from countries identified as having misaligned 
currencies. ECAT recognizes the need for and supports policies that 
promote the adoption of market-determined exchange rates, without 
substantial government intervention, by countries around the world. 
Some aspects of this proposal, however, could harm U.S. interests and 
violate the United States' international obligations, rather than 
producing the positive changes sought. Key problems with this 
legislation include the following:
    Calculation of Currency Undervaluation. Determining what the proper 
exchange rate should be where there has been a history of significant 
government direct or indirect intervention can be a difficult 
proposition and result in very different findings. In the case of 
China, different methodologies have produced rates of undervaluation as 
varied as 5 to over 40 percent, while others have estimated the range 
of undervaluation of the Japanese yen to the dollar as between 15-to-30 
percent. Nevertheless, Section 103(a) directs the Commerce Department 
to determine whether a currency is fundamentally misaligned based on a 
simple average of three prescribed methodologies. Section 202 directs 
the Secretary of the Treasury to use the same three methodologies to 
calculate any misalignment, but does not direct the Secretary whether 
to average or choose between the different results. As a result, it is 
likely that the two Cabinet agencies will reach different results 
regarding the extent of currency misalignment. Such differences, 
combined with the unilateral nature of this approach, will undermine 
U.S. efforts, including the United States' ability to garner 
international support (as sought by this legislation) to promote 
countries' improvements in this area.
    Deeming Currency Misalignment a Countervailable Subsidy under U.S. 
Law. Section 103(b) revises U.S. countervailing duty (CVD) law\1\ to 
provide that a misaligned currency represents an actionable subsidy 
under U.S. CVD law, by deeming that the misalignment represents a 
``financial contribution'' and is a ``specific'' subsidy. Many believe 
that currency misalignment does:
---------------------------------------------------------------------------
    \1\ Countervailing duty law authorizes the imposition of additional 
tariffs on imported goods found to be improperly subsidized and to 
cause injury or the threat thereof to the domestic industry.

        NOT represent a financial contribution from the government, 
        because there is no transfer of anything of tangible value from 
        the government; and does
        NOT constitute a specific subsidy, since all industries in a 
        given country would benefit from currency misalignment, not a 
        select group.

    Thus, a number of industry and legal experts believe that Section 
103(b) violates U.S. World Trade Organization (WTO) obligations, which 
define actionable domestic subsidies as ones that in fact provide a 
financial contribution from a government that give a benefit to a 
specific industry or industries.
    Increase of Antidumping Duties for Currency Misalignment. Section 
103(c) requires that the antidumping (AD) duty\2\ calculated for a 
country found to have a fundamentally misaligned currency be adjusted 
upward to account for that misalignment. This addition to the AD margin 
is required whenever Commerce finds a fundamental misalignment, whether 
or not a country is designated for priority action (e.g., has engaged 
in protracted interventions, excessive reserve accumulations, 
restrictions in inflows or outflows, or other relevant policy or 
action). This provision raises several WTO-consistency issues. First, 
the WTO prescribes one very clear methodology for dealing with exchange 
rates, which is not this methodology and no other language of the WTO 
AD Agreement provides clear support for allowing this approach. In the 
case of a NME country, the application of this provision would 
overcompensate for any currency misalignment, since the NME calculation 
does not involve the undervalued prices and costs in the home market, 
but uses surrogate valuation. This could be challenged as a further 
violation of U.S. international obligations. Finally, given the 
inability to calculate precisely the actual misalignment level, this 
calculation would likely be challenged as an inaccurate and unilateral 
penalty that other countries might seek to replicate in retaliation 
against the United States.
---------------------------------------------------------------------------
    \2\ Antidumping duties are additional tariffs that are imposed on 
imported goods found to be sold at ``less than fair value'' in the 
United States and that cause injury or the threat thereof to the 
domestic industry. In a non-NME case, Commerce compares the U.S. sales 
(the export price) with either sales in the foreign market, sales in a 
third country market or ``constructed value,'' calculated based on the 
foreign producer's costs of production. In an NME case, Commerce 
compares the U.S. price with the cost of production of the product in 
the NME country, calculated using the NME producer's factors of 
production (e.g., hours worked, kilowatts of electricity, quantity of 
inputs), valued using costs and prices in a surrogate, market-economy 
country.
---------------------------------------------------------------------------
    Other Penalties. Section 206 directs the Administration to impose 
several penalties on a country that has a fundamentally misaligned 
currency designated for priority action, including the denial of 
financing by the Overseas Private Investment Corporation (OPIC) or by 
multilateral development banks. The former penalty will most likely 
hurt U.S. exporters relying on OPIC financing to help them compete in 
foreign markets, to the benefit of foreign competitors. The denial of 
multilateral bank financing also raises issues by preventing or 
delaying poverty-reducing projects from moving forward. In both cases, 
the penalty is automatically imposed after the finding of a misaligned 
currency for priority action, thereby undermining any chance for 
significant progress in the consultations Treasury is required to 
initiate with such countries.
    Lack of Presidential Waiver. Unlike S. 1607, which was introduced 
earlier and contains some similar provisions, H.R. 2942 does not permit 
the President to waive any of the penalty actions involving CVD or AD 
rates, or the other penalties for reasons of national security or 
economic benefit or harm. Coupled with the automaticity of imposition 
of many of the penalty actions, the failure to provide such discretion 
is likely to have unintended consequences. For instance, the 
Administration could be engaging in productive consultations, only to 
have the other government walk away as a result of the mandatory 
application of several penalties. Given the highly complex issues 
involved, legislation should not go forward in this area without 
appropriate Presidential waivers on both national security and economic 
grounds.
    As drafted, H.R. 2942 would be counterproductive to promoting 
progress in the U.S. China commercial relationship and would undermine 
the United States' credibility in promoting a rules-based trading 
system.
Application of Countervailing Duty Law to Non-Market Economy Countries 
        (H.R. 1229)
    H.R. 1229, the Nonmarket Economy Trade Remedy Act of 2007, seeks to 
ensure that the U.S. Department of Commerce applies the countervailing 
duty (CVD) law to products from non-market-economy (NME) countries, 
such as China, Vietnam and Armenia; \3\ sets specific benchmarks in the 
subsidy calculations and requires Congressional approval before a 
country can be graduated from NME status.
---------------------------------------------------------------------------
    \3\ As defined in the Omnibus Trade and Competitiveness Act of 
1988, an NME country is one that the Commerce Department finds ``does 
not operate on market principles of cost or pricing structures so that 
sales of merchandise in such country do not reflect the fair value of 
the merchandise'' based on its analysis of several factors, including 
currency convertibility, freely bargained wage rates, and governmental 
control in the market.
---------------------------------------------------------------------------
    While the CVD provisions are silent with respect to NME countries, 
from 1984 until 2007, the Commerce Department refrained from applying 
the CVD law to NMEs, given the difficulty in determining individual 
subsidies in NME markets because of widespread governmental 
intervention. The Federal Circuit upheld Commerce's discretion not to 
apply the CVD law to NME countries in Georgetown Steel Corp. v. United 
States (1984). In its 2007 preliminary determination involving Coated 
Free Sheet from China, Commerce found that it could identify subsidies 
in NME cases. Several other CVD cases against imports from China have 
been filed.
    Notably, AD rules have long included a special NME mechanism that 
seeks to create a benchmark that better approximates market-economy 
costs of production. Rather than relying on NME producers' actual costs 
or prices, the AD rules require Commerce to compare the price of the 
product sold in the United States (the export price) with the cost of 
production in the foreign country, calculated using the NME producer's 
factors of production (e.g., hours worked, kilowatts of electricity, 
quantity of inputs), valued using costs and prices in a surrogate, 
market-economy country at a similar level of economic development.
    While the intent of H.R. 1229 to ensure that the countervailing 
duty law is applied to NMEs is relatively non-controversial, this 
legislation contains several problems that need to be corrected so that 
it is constitutional, in compliance with U.S. international obligations 
and demonstrates that the United States continues to be a strong 
supporter of the rules-based system. In particular, this legislation 
should be modified to:
    Eliminate the Legislative Veto on NME Graduation. The current 
proposals violate the Constitution's presentment clause by allowing 
Congress to veto an Administration action (the graduation of a country 
from NME to market-economy status) by failing to pass a joint 
resolution. This is a form of a legislative veto that the Supreme Court 
has rejected. This provision also undermines the ability to use the 
graduation criteria to promote economic reforms sought by Congress 
(such as currency convertibility) and sends the wrong signal to other 
countries, which are increasingly blocking U.S. exports through the 
misuse of trade-remedy provisions. Far preferable would be a 
consultation and layover process that requires that a country's 
graduation to market-economy status can only take effect 60 days after 
the Administration provides Congress with a full explanation of how the 
graduating country meets the legislative criteria. This approach holds 
Commerce accountable and permits full Congressional review.
    Eliminate the WTO-Violative Subsidy Benchmark Presumption. The 
current provisions explicitly violate the WTO terms under which subsidy 
benchmarks are to be calculated. The United States (and all other WTO 
members) agreed to use benchmarks within China, unless special 
difficulties exist as part of China's accession. Similarly, the 2004 
WTO Appellate Body decision in Final Countervailing Duty Determination 
with Respect to Softwood Lumber from Canada (WT/DS257/AB/R) found that 
out-of-country benchmarks in subsidy cases could only be used in 
``limited'' circumstances where in-country benchmarks are 
``distorted.'' H.R. 1229 effectively reverses this presumption and 
violates U.S. WTO obligations. To avoid unnecessary WTO challenges and 
promote continued U.S. credibility as the United States seeks to 
promote improved WTO compliance by China and other countries, this 
benchmark provision must be dropped or modified in a manner consistent 
with U.S. obligations.
    Add Language to Promote Fair and Proper Calculations. As U.S. 
companies are increasingly facing antidumping actions for goods 
exported to China and elsewhere, it is imperative that the United 
States seek to maintain the fairest possible trade-remedy laws. Given 
the use of surrogate methodology for NMEs under the AD laws, 
application of the CVD laws on the same products raises a strong 
possibility of double-counting the same subsidy (since under the AD 
methodology, costs and prices are based on non-NME costs and prices 
from surrogate countries that are not subsidized). It is critical to 
provide Commerce the explicit authority to ensure fair calculations 
that do not double-count subsidies.
Limitation of Presidential Discretion in Section 421 Safeguard Cases
    Various pieces of legislation, such as Section 401 of S. 364 seek 
to eliminate presidential discretion to waive or modify remedies for 
economic interest reasons in section 421 safeguard cases involving 
imports from China. Denying presidential discretion in China safeguard 
cases is punitive and will likely result in substantial harm to other 
domestic industries and workers.
    Section 421 cases involve products that are fairly-traded, but 
which are found to come into the United States in substantial 
quantities. Such cases involve a very low injury threshold--market 
disruption--compared to both antidumping and countervailing duty cases 
(where material injury or the threat thereof must be demonstrated). The 
independent ITC makes a recommendation to the President on what, if 
any, remedy should be imposed and the President has the ability, 
weighing both economic and national security interests, to modify or 
not apply any remedy.
    Given that this provision involves fairly-traded goods and a very 
low injury threshold, the retention of presidential discretion for 
section 421 safeguard cases is very much needed to prevent the misuse 
of such provisions from disrupting other major parts of the U.S. 
economy.
Other Antidumping/Countervailing Duty Proposals
    We also understand that a number of other antidumping and 
countervailing duty proposals may be considered as part of China trade 
legislation, such as zeroing and changes to the material injury 
standard. ECAT would note that trade remedy laws in the United States 
and throughout the world have become increasingly complicated, as 
global relationships and commerce have expanded. Changing U.S. trade 
remedy law should be undertaken with great care and much review of the 
effects of those changes on all U.S. industries, including the need for 
U.S. manufacturers and farmers to be able to access foreign markets 
without the unfair and anti-competitive misuse of such remedies. As 
well, even through goods from China have increasingly been subject to 
U.S. trade-remedy actions, these laws have much broader effect on 
imports from around the world. Thus, changes to these rules should not 
be occasioned by one country. This is quite important for U.S. 
industries, as U.S. exports themselves are increasingly subject to 
Chinese and other governments' actions under their own antidumping 
rules.
    To the extent changes are considered, ECAT very strongly urges that 
those changes, like other legislation, represent WTO-consistent 
policies that will continue to support the United States' leadership in 
the rules-based trading system.
CONCLUSION
    ECAT welcomes the opportunity to provide these comments on ways to 
improve the U.S.-China commercial relationship. As indicated above, 
ECAT very strongly urges that the United States continue on the path of 
constructive dialogue and engagement, using WTO and other mechanisms to 
promote continued efforts at reform. ECAT strongly urges the Committee 
not to adopt WTO-inconsistent legislation or proposals that will 
undermine U.S. leadership in the rules-based trading system it helped 
to create.

                                 

                                 Law Offices of Stewart and Stewart
                                               Washington, DC 20037
                                                    August 16, 2007

Hon. Charles B. Rangel, Chairman
Committee on Ways and Means
Hon. Sander M. Levin
Chairman, Subcommittee on Trade
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairmen Rangel and Levin:

    These comments are submitted on behalf of the Law Offices of 
Stewart and Stewart. For nearly fifty years, Stewart and Stewart has 
specialized in domestic trade remedies law, participating in hundreds 
of investigations and reviews under U.S. antidumping, countervailing 
duty, and other trade remedy laws on behalf of U.S. manufacturers, 
farmers, ranchers, and workers.
    First, we applaud the Ways and Means' Subcommittee on Trade for 
holding hearings earlier this month on the important issues of 
legislation related to trade with China. Congress has long supported 
strong and effective trade remedy laws to ensure that expanded trade 
was also trade that complied with fair trade rules so that workers and 
their families, companies and the communities of America could compete 
on the basis of efficiency and innovation and not because of closed 
markets, government largesse or other distortions that prevent 
Americans from having a fair opportunity to compete. As stated in the 
Trade Act of 2002, support for expanded trade will not exist in America 
if U.S. trade remedies are not usable and effective.
    In the hearing held on August 2nd of this year, three topics were 
discussed. The first, ensuring that U.S. countervailing duty law is 
applicable to all countries, not just to market economies, is 
important, although developments in the case law at the Department of 
Commerce make the changes being considered by the Committee and its 
Trade Subcommittee mainly about codifying recent actions by the 
Department. We are supportive of both the actions taken to date by 
Commerce and of the legislation considered by the Subcommittee.
    A second issue examined in the hearing is how problems with the 
valuation of other currencies can or should be addressed by U.S. law. 
This is obviously a critically important issue since misaligned 
currencies hurt our exporters by making U.S. exports more expensive 
than they should be, and hurt our domestic producers of agricultural 
and industrial goods by making imports artificially inexpensive. It is 
in the global trading system's interest to have rational currency 
policies and rates reflective of underlying economic strengths. While 
there has been considerable discussion of how best to address the 
issue, the trade approach reviewed in the bill before the Committee and 
Subcommittee sounds in WTO rights and would appear to be certainly one 
way to move forward on this important issue.
    Finally, and (from our perspective of what is needed to ensure that 
existing trade remedies remain effective) most importantly, there is a 
need to address two constructions of either U.S. obligations and/or 
U.S. law that are harmful to maintaining the effectiveness of U.S. 
trade remedy laws. While the issues involved pertain to all antidumping 
and (for one issue) all countervailing duty cases, they are also 
critically important in ensuring our trade remedy laws work vis-a-vis 
one of our largest trading partners, China. As the Subcommittee noted 
in its Advisory on the August 2 hearing, ``China is a major source of 
dumped and injurious imports, with nearly 85% of imports subject to new 
antidumping orders since 2004 originating from China, and it has many 
subsidy programs that could distort trade between the United States and 
China.'' TR-5 at 2 (July 26, 2007).
I. Congressional Action Is Needed to Ensure WTO Dispute Settlement 
        Decisions Comply with the Limits within the Dispute Settlement 
        Understanding and Do Not Undermine the Effectiveness of U.S. 
        Antidumping Law by Creating Obligations Never Agreed to by the 
        U.S.
    While most trading nations are generally pleased with the operation 
of the WTO's dispute settlement system, since at least 2002, Congress 
has identified a concern that in the trade remedy area, panels and the 
Appellate Body were rendering decisions not anchored in the agreements, 
essentially creating obligations not agreed to by the United States. 
While DSU Articles 3.2 and 19.2 limit the power of panels and the 
Appellate Body by indicating that they cannot create rights or 
obligations not contained in the underlying agreements, unfortunately, 
there is no easy way to enforce such limits when the Appellate Body 
reaches a decision that is palpably inconsistent with U.S. rights.
    On the issue of how weighted average dumping margins are calculated 
(a critical issue in the administration of U.S. law), a series of WTO 
Appellate Body rulings are invented obligations ignoring long standing 
practice, and even better reasoned panel decisions. So off the mark 
have these decisions been that the Administration has told U.S. trading 
partners that overreaching WTO decisions on ``zeroing'' must be 
resolved through negotiations in the on-going Doha Round of 
negotiations at the WTO. Congress can help make such a resolution a 
reality by ensuring that the WTO ``zeroing'' decisions are not 
implemented until such negotiations succeed. While trading partners 
typically implement adverse decisions, this is not always the case, 
particularly where issues are of significant importance to the member 
who seeks clarification through ongoing negotiations. Thus, the EU has 
lagged in its implementation of certain issues as have Canada and 
Brazil. The WTO gives members the ability to choose not to comply. 
Thus, active pursuit of the resolution of the erroneous construction of 
obligations through negotiations is not only permissible but critically 
important where, as here, both Congress and the Administration have 
noted the erroneous nature of the decisions made.
    Thus, we encourage the Committee and Subcommittee to include the 
legislative language in H.R. 2714 in any trade legislation that it 
moves forward this year. Trading partners need to understand that the 
issue is of great importance and resolution through negotiations is the 
appropriate avenue for addressing a troubling series of decisions. We 
believe that the bill sends that message. Enactment will also help 
focus the WTO on the periodic problem of overreaching by the WTO 
Appellate Body and the need to find approaches which in fact have the 
Appellate Body operating within the confines of the Dispute Settlement 
Understanding.
A. U.S. Practices Challenged at the WTO Are Needed to Redress 100% of 
        the Dumping Occurring in the Market
    Since the creation of the Antidumping Act of 1921, U.S. trade 
policy has provided a remedy to U.S. producers harmed by international 
price discrimination that results in goods being exported to the U.S. 
at a price below the good's normal value. This basic right to address 
injurious dumping was included in GATT Article VI in the late 1940s and 
has been maintained ever since. Since the beginning of U.S. law, all 
injurious dumping was addressable through the imposition of a duty 
equal to 100% of the dumping found on individual transactions. Where an 
imported article was not dumped, no duties were assessed. Never in the 
history of U.S. antidumping law has dumping found been excused because 
some imports were not dumped. Yet that is what the Appellate Body 
indicates is the correct construction of WTO obligations. Importantly, 
virtually every one of our trading partners with active trade remedy 
laws has used similar approaches. Even today, most of our trading 
partners ensure that all duties to be collected are in fact collected. 
In assessments, we are unaware of any major country which gives 
``credit'' for non-dumped sales.
    Indeed, the European Union which challenged the U.S. in one of the 
WTO challenges, continues to sum all dumping found even in 
investigations whenever they find prices vary significantly to 
accounts, regions or during different time periods. Stated differently, 
the EU ``zeros'' non dumped sales in investigations in certain 
circumstances. In such an environment, the correct course of action is 
to maintain our longstanding system and pursue a negotiated resolution 
with our trading partners. This is what H.R. 2714 would ensure occurs.
B. WTO Dispute Settlement Panels and the Appellate Body Have Made 
        Erroneous, Overreaching Decisions on ``Zeroing,'' Creating 
        Obligations to Which the U.S. Never Agreed
    From the beginning of the GATT, it was recognized that countries 
had the right to address injurious international price discrimination 
through the imposition of dumping duties. According to Article VI:1 of 
GATT 1994, injurious dumping is to be ``condemned.'' Article VI:2 of 
GATT 1994 further explains that the purpose of antidumping duties is to 
``offset or prevent dumping.'' The entire focus of Article VI of GATT 
1994 is to set out what member states can do to counteract dumping,\1\ 
and the Antidumping Agreement elaborates upon the provisions of Article 
VI. The United States was a major participant in the creation of the 
GATT and in the negotiation of the current Antidumping Agreement. At 
all times during these negotiations, the U.S. understanding of its 
rights has been the same--that it may collect antidumping duties on 
100% of the dumping that it finds. No duties are collected on imports 
that are not dumped. This is just like other government regulation of 
conduct that needs to be controlled. You receive a ticket if you are 
caught speeding. You don't get a ticket when you are obeying the speed 
limits or traveling below the speed limit. You certainly don't receive 
credit because you weren't speeding a mile back. The concept of the 
``credit'' or ``offset'' is nonsensical in that context and is 
similarly nonsensical in the trade remedy area.
---------------------------------------------------------------------------
    \1\ U.S.--1916 Act (EC) (Panel), Panel Report, at paras. 6.103, 
6.106-107, 6.114.
---------------------------------------------------------------------------
    Yet, in a series of decisions, beginning with EC--Bed Linen, and 
continuing through U.S. Softwood Lumber V, U.S.--Zeroing (EC), and 
U.S.--Zeroing (Japan), WTO Appellate Body decisions have, for various 
and changing reasons, found that imports that are not dumped actually 
constitute a basis for reducing the amount of dumping found. Such an 
obligation cannot be found in the Antidumping Agreement. Indeed, U.S. 
negotiators during the Uruguay Round understood that efforts to 
introduce such a nonsensical approach had been rejected and defeated:
    This interpretation of the Agreement creates an obligation to which 
the U.S. did not agree, and, even more disturbing, it imposes upon the 
U.S. an obligation that the U.S. affirmatively opposed and successfully 
prevented from being incorporated into the WTO Antidumping 
Agreement.\2\
---------------------------------------------------------------------------
    \2\ Letter from Eric I. Garfinkel, Former Assistant Secretary of 
Commerce for Import Administration (1989-1991), and Alan M. Dunn, 
Former Assistant Secretary of Commerce for Import Administration (1991-
1993), to the Secretary of Commerce and the U.S. Trade Representative 
(Jun. 20, 2005).
---------------------------------------------------------------------------
    Not surprisingly, therefore, the Administration has been 
consistently critical of the reasoning, or lack thereof, in the 
``zeroing'' decisions:

      ``The United States had grave concerns about whether the 
Appellate Body had properly applied the special standard of review 
under Article 17.6(ii) of the Anti-Dumping Agreement.'' Dispute 
Settlement Body, Minutes of the Meeting (May 12, 2001), WT/DSB/M/101 
(May 8, 2001).
      ``There was a widespread view among the GATT Contracting 
Parties--including Canada--that such offsetting had not been required 
in the years and decades before the WTO Agreement, and they had 
continued in this view as WTO Members after 1995.'' Statement of the 
United States at the adoption of the Panel and Appellate Body Reports 
in Softwood Lumber (WT/DS264) (Aug. 31, 2004).
      ``[T]he United States remains of the view that the 
Appellate Body report in [the U.S. Zeroing (EC)] dispute is a deeply 
flawed document.'' Statement of the United States on implementation of 
the Panel and Appellate Body Reports in Zeroing (EC) (WT/DS294) (May 
30, 2006).
      ``[T]he sum total of the Appellate Body's findings on the 
zeroing issue over the past several years calls into question whether 
the major users of the antidumping remedy began breaching that 
Agreement the very day it went into effect in 1995. This is a 
surprising result. Presumably the Members who negotiated the Agreement 
understood its meaning.'' Statement of the United States at the 
adoption of the Panel and Appellate Body Reports in Zeroing (Japan) 
(WT/DS322) (Jan. 23, 2007).

    In the Trade Act of 2002, Congress recognized that ``[s]upport for 
continued trade expansion requires that dispute settlement procedures 
under international trade agreements not add to or diminish the rights 
and obligations provided in such agreements,'' noting that, ``the 
recent pattern of decisions by dispute settlement panels of the WTO and 
the Appellate Body to impose obligations and restrictions on the use of 
antidumping, countervailing, and safeguard measures by WTO members--has 
raised concerns.'' \3\ Congress expressed concern that WTO dispute 
settlement panels and the Appellate Body ``apply the standard of review 
contained in Article 17.6 of the Antidumping Agreement,--[and] provide 
deference to a permissible interpretation by a WTO member. . . .'' \4\ 
The accompanying Senate report stated that the concerns expressed in 
the legislation were prompted by ``recent decisions placing new 
obligations on the United States . . . which are not found anywhere in 
the negotiated texts of the relevant WTO agreements.'' \5\ That report 
specifically refers to the decision in EC--Bed Linen, wherein the 
``zeroing'' issue was first addressed.\6\
---------------------------------------------------------------------------
    \3\ 19 U.S.C. Sec. 3801(b)(3).
    \4\ 19 U.S.C. Sec. 3801(b)(3).
    \5\ S. Rep. No. 107-139, at 6 (2002).
    \6\ Id. at 7, n.1
---------------------------------------------------------------------------
    More recently, Members and Senators have written letters to the 
Administration about the continuing problem of WTO overreaching in the 
``zeroing'' cases. In November 2006, Representatives Cardin and Levin 
wrote to Ambassador Schwab about their ``continuing serious concern 
with regard to decisions of the World Trade Organization Appellate Body 
(AB) addressing the issue of `zeroing' in antidumping proceedings.'' 
\7\ Likewise, in December 2006, eleven Senators wrote to Secretary 
Gutierrez and Ambassador Schwab to express: concern about the 
continuing pattern of World Trade Organization (WTO) Appellate Body 
decisions addressing the issue of ``zeroing'' in antidumping 
proceedings. Without question, the Appellate Body is creating 
obligations not included in the WTO agreements and never accepted by 
the United States. We are deeply troubled that U.S. trade remedy laws 
are being undermined by WTO overreaching on the ``zeroing'' issue.\8\
---------------------------------------------------------------------------
    \7\ Letter to Ambassador Susan C. Schwab from Representatives 
Benjamin L. Cardin and Sander M. Levin (November 27, 2006).
    \8\ Letter to Secretary Carlos M. Gutierrez and Ambassador Susan C. 
Schwab from Senators Rockefeller, Baucus, Craig, Durbin, Crapo, Byrd, 
Voinovich, Conrad, Graham, Bayh, and Dole (December 11, 2006).
---------------------------------------------------------------------------
    Chairman Rangel and Chairman Baucus of the Senate Finance Committee 
also wrote to Secretary Gutierrez and Ambassador Schwab seeking delay 
of the implementation of the decisions because of their own ``concern 
that the Appellate Body decision at issue involves an attempt to impose 
unilaterally obligations on a WTO Member--in this case, the United 
States--without its prior consent.'' \9\
---------------------------------------------------------------------------
    \9\ Letter to Secretary Carlos M. Gutierrez and Ambassador Susan C. 
Schwab from Chairman Charles B. Rangel (Committee on Ways and Means) 
and Chairman Max Baucus (Committee on Finance) (January 19, 2007).
---------------------------------------------------------------------------
    Outside observers and academics have also questioned the validity 
of the ``zeroing'' decisions.\10\
---------------------------------------------------------------------------
    \10\ See, e.g., Greenwald, John, WTO Dispute Settlement: An 
Exercise in Trade Law Legislation?, 6(1) J. Int'l Econ. Law 113, 120 
(2003); Alford, Roger P., Reflections on U.S.-Zeroing: A Study in 
Judicial Overreaching by the WTO Appellate Body, 45 Colum. J. 
Transnat'l Law (2006).
---------------------------------------------------------------------------
    In such circumstances, it is important for Congress to indicate 
such wrongly decided decisions will not be implemented. Rather, 
negotiations should be mandated and pursued aggressively by the 
Administration. Indeed, the Administration has indicated ``zeroing'' 
must be addressed through negotiations. Specifically, in its request, 
the U.S. explained why negotiations are needed:
    A prohibition of zeroing, or a requirement to provide offsets for 
non-dumped transactions, simply cannot be found in the text of the AD 
Agreement. Nevertheless, the Appellate Body concluded that authorities 
are required to offset non-dumped comparisons against dumped 
comparisons, even though this conclusion is at odds with long-standing 
practices implementing AD Agreement provisions relating to, among other 
things, targeted dumping and prospective normal value systems, as well 
as with long-held views on the very concept of dumping itself. The 
issue of zeroing, on which Members could not reach agreement in the 
Uruguay Round, should not be left to dispute settlement. We as Members 
should endeavor to reach an agreement on this issue through 
negotiation.\11\
---------------------------------------------------------------------------
    \11\ United States--Offsets for Non-Dumped Comparisons, 
Communication to the Negotiating Group on Rules, TN/RL/W/208 (June 5, 
2007).
---------------------------------------------------------------------------
    Too many trading partners seem to be taking the position that they 
need not negotiate with the United States. With a 90% violation rate 
found by the Appellate Body on cases brought, many governments seem to 
believe that they can and will achieve through negotiations concessions 
from the United States that the government would never agree to because 
of the underlying policies and constituent positions. Implementing 
truly egregious decisions simply encourages such an approach contrary 
to the rights and interests of the United States and the stated 
structure and purpose of the WTO generally. As a leading promoter of 
the WTO, the U.S. has an obligation to see that the system works 
properly, that the Appellate Body does not impose obligations on 
members contrary to the limitations in the DSU, and that trading 
partners engage in negotiations to resolve issues not contemplated in 
the existing agreements. Such an approach promotes the proper 
functioning of the WTO system and ensures long-term support for the 
multilateral trading system and its rule of law.
    Legislation has been introduced (H.R. 2714) that would mandate 
resolution of the ``zeroing'' issue through negotiations and ensure 
that resolution through negotiations is the approach that is pursued. 
Passage of this legislation will ensure that U.S. producers and workers 
are protected from negative impacts arising from these erroneous WTO 
decisions while an agreement to address these decisions is reached in 
Geneva.
II. Legislation on China Trade Should Ensure Effective Relief Is 
        Available to Industries and Workers Harmed by Unfair Trade
    As the House Ways and Means Committee considers legislation related 
to trade with China, there are additional measures that would help 
ensure that U.S. trade laws provide effective relief to industries 
harmed by unfair trade by China and other countries.
    First, Congress should take action to address a decision by the 
U.S. Court of Appeals for the Federal Circuit that will significantly 
weaken U.S. trade remedy laws. The Court imposed a new test that must 
be met before an industry can receive relief from unfair trade. The 
decision requires the International Trade Commission not only to find 
that unfairly traded imports are a cause of injury to the domestic 
industry, but also to engage in a speculative, hypothetical inquiry to 
determine whether or not imports from countries that are not subject to 
investigation would cancel out the benefits of import relief if any 
relief is granted. This test has no basis in the law, and it is a 
dramatic departure from longstanding construction of U.S. law by the 
U.S. International Trade Commission. The test will make injury 
investigations much more costly, and it will diminish the likelihood of 
relief to America's producers and workers that have been harmed by 
unfair trading practices. Congress has the opportunity to correct this 
erroneous decision and re-affirm the intent of the trade remedy laws by 
enacting language in H.R. 2714 that would restore the law to its 
original meaning.
    We appreciate this opportunity to submit our views.

                                 
            Statement of the National Pork Producers Council
    The National Pork Producers Council is a national association 
representing 44 affiliated states that annually generate approximately 
$15 billion in farm gate sales. The U.S. pork industry supports an 
estimated 550,200 domestic jobs, generates more than $97 billion 
annually in U.S. economic activity, and contributes over $34 billion to 
the U.S. gross national product.
    Pork is the world's meat of choice. Pork represents 40 percent of 
total world meat consumption. (Beef and poultry each represent less 
than 30 percent of global meat protein intake.) As the world moves from 
grain based diets to meat based diets, U.S. exports of safe, high-
quality and affordable pork should increase. This is because economic 
and environmental factors dictate that pork can be most efficiently 
produced in grain surplus areas, such as the United States, and 
imported into grain deficit areas. However, the ability of the U.S. 
pork industry to leverage its natural advantages, depends on continued 
agricultural trade liberalization and increased market access for U.S. 
pork exports.
FOREIGN COUNTRY MARKET ACCESS IS CRITICAL TO U.S. PORK PRODUCERS
    Foreign country market access for U.S. pork exports is critical for 
U.S. pork producers. In 2006, the United States exported 1,262,499 
metric tons of pork valued at $2.864 billion. This is a 9 percent 
increase over 2005 pork exports in volume and value terms. 2006 was 
15th straight year of record pork exports. U.S. exports of pork and 
pork products have increased by more than 433 percent in volume terms 
and more than 401 percent in value terms since the implementation of 
the NAFTA in 1994 and the Uruguay Round Agreement in 1995, both of 
which improved market access for U.S. pork producers. Pork exports have 
grown because of these and subsequent trade agreements.
[GRAPHIC] [TIFF OMITTED] 49994A.037

    U.S. pork producers have increased their exports to many countries 
as a result of market access opening commitments within the context of 
the World Trade Organization (WTO). We highlight below a few of the 
markets that have grown.
Japan
    Thanks to a bilateral agreement with Japan on pork that became part 
of the Uruguay Round, U.S. pork exports to Japan have soared. In 2006, 
U.S. pork exports to Japan reached 337,373 metric tons valued at just 
over $1 billion. Japan remains the top value foreign market for U.S. 
pork. U.S. pork exports to Japan have increased by 279 percent in 
volume terms and by 178 percent in value terms since the implementation 
of the Uruguay Round.
China
    From 2005 to 2006, U.S. exports of pork and pork products to China 
increased 13 percent in volume terms, totaling 88,439 metric tons 
valued at $126 million. U.S. pork exports have increased because of the 
increased market access resulting from China's accession to the WTO. 
Since China implemented its WTO commitments on pork, U.S. pork exports 
have increased 53 percent in volume terms and 90 percent in value 
terms. China's adherence to WTO rules, including rules governing 
antidumping and countervailing duties, and sanitary and phytosanitary 
norms, is essential to U.S. pork producers' ability to increase their 
exports to this vast market.
[GRAPHIC] [TIFF OMITTED] 49994A.038

Russia
    In 2006 U.S. exports of pork and pork products to Russia totaled 
82,677 metric tons valued at $164 million--a 105 percent increase in 
volume terms and 127 percent increase in value terms over 2005. U.S. 
pork exports to Russia have increased largely due to the establishment 
of U.S.-only pork quotas established by Russia as part of its 
preparation to join the World Trade Organization. (The spike in U.S. 
pork export to Russia in the late 1990s was due to pork shipped as food 
aid.)
[GRAPHIC] [TIFF OMITTED] 49994A.039

Benefits of Expanding U.S. Pork Exports
    Prices--The Center for Agriculture and Rural Development (CARD) at 
Iowa State University has calculated that U.S. pork prices in 2004 were 
$33.60 per head higher than they would have been in the absence of 
exports.
    Jobs--The USDA has reported that U.S. meat exports have generated 
200,000 additional jobs and that this number has increased by 20,000 to 
30,000 jobs per year as exports have grown.
    Income Multiplier--The USDA has reported that the income multiplier 
from meat exports is 54 percent greater than the income multiplier from 
bulk grain exports.
    Feed Grain and Soybean Industries--Each hog that is marketed in the 
United States consumes 12.82 bushels of corn and 183 pounds of soybean 
meal. With an annual commercial slaughter of 105.3 million animals in 
2006, this corresponds to 1.34 billion bushels of corn and 9.63 million 
tons of soybean meal. Since approximately 15 percent of pork production 
is exported, pork exports account for approximately 201 million bushels 
of corn and 1.44 million tons of soybean meal.
    As the incremental benefits from the Uruguay Round and NAFTA begin 
to diminish because the agreements are fully phased-in, the creation of 
new export opportunities becomes increasingly important. U.S. 
achievements in bilateral and regional free trade agreements to 
increase market access for U.S. exports could be severely undermined or 
even eliminated if tariff reductions scheduled in these agreements are 
counteracted by antidumping duties on U.S. exports--effectively one 
duty replaced with another (perhaps even higher)--or through other 
sorts of barriers to trade.
CHANGES TO U.S. TRADE LAWS SHOULD NOT UNDERMINE MARKET ACCESS FOR U.S. 
        EXPORTS
    With 96 percent of the world's population residing outside of the 
United States, it is essential that U.S. pork producers continue to 
gain access to more of these potential customers. While pork exports 
have grown in recent years, future growth depends on further trade 
liberalization and increased market access for U.S. exports.
    Legislation that has been introduced in this Congress to modify 
U.S. trade laws should be evaluated based on its impact on market 
access for U.S. exports. Specifically, in considering changes to U.S. 
trade laws, Congress should consider the possible impact on the ability 
of the United States to lead in compliance with global trading rules 
established under the WTO, which have significantly benefited the U.S. 
pork industry and other exporting industries.
    Changes to U.S. trade laws should not set precedents that if 
imitated by other countries would impede market access for U.S. 
exports. Countries' trade laws, including trade remedy laws, as well as 
their compliance with WTO rules and dispute settlement body decisions, 
can significantly impact the U.S. pork industry's ability to export.
    U.S. exports are increasingly subject to actions under other 
government's antidumping rules. The United States is no longer the 
biggest user of antidumping measures. Instead, it has become one of the 
most targeted countries for such measures. Only China, Taiwan and Korea 
have been subject to more antidumping actions since 1995 than the 
United States. 275 actions have been initiated and 104 measures taken 
against the United States. China and India have become by far the 
biggest users of antidumping measures, with other developing countries 
like Mexico and Argentina following them. Some 100 of the WTO's 151 
members have antidumping legislation in place and about 80 of them have 
used it (counting the European Union's 27 members plus the European 
Commission).
    As a result of the significant increase in cases and measures 
imposed against U.S. exports, the United States must evaluate the 
effect of changes to its trade laws on compliance by China and others 
with WTO rules. U.S. compliance with WTO rules sets an example to the 
rest of the world, and, therefore, is critical for maintaining and 
improving market access in other countries for U.S. exports of pork and 
other products.
    In this context, the NPPC is particularly concerned with the 
following proposals to modify U.S. trade laws.
    ``Zeroing''--One legislative proposal would insert into the U.S. 
statute a practice known as ``zeroing,'' which the U.S. Department of 
Commerce effectively has rejected for antidumping investigations 
following decisions by the WTO that the practice is inconsistent with 
WTO rules. Zeroing artificially inflates antidumping margins by 
changing negative dumping margins to zero in the dumping calculation. 
Modifying U.S. law in line with this proposal could encourage other 
countries to adopt zeroing, which would inflate the antidumping duties 
imposed on U.S. imports to those countries. Additionally, inserting 
into U.S. law a provision found to be inconsistent with WTO rules would 
seriously undermine U.S. leadership in promoting compliance with WTO 
rules and decisions, especially by newer WTO members such as China and 
aspiring members such as Russia.
    WTO Dispute Settlement Review Commission--Another proposed measure 
would block U.S. implementation of WTO dispute settlement body 
decisions. Implementation would take place only if a proposed Review 
Commission approved implementation. Non-implementation or untimely 
implementation of WTO dispute settlement body decisions would send a 
strong no-confidence signal by the United States in the WTO and its 
dispute settlement system. A vote of no confidence could jeopardize 
compliance by other countries with WTO rules and decisions, which have 
been crucial to advancing U.S. export interests around the world.
    Other Trade Remedy Law Modifications--Several other proposals that 
would modify U.S. antidumping and countervailing duty laws (subsidy) 
would also raise WTO-consistency concerns that could undermine U.S. 
ability to encourage greater market access for U.S. exports. For 
instance, proposals to modify U.S. antidumping and countervailing duty 
laws to target currency undervaluation should be evaluated carefully in 
light of U.S. obligations pursuant to WTO rules. For example, U.S. law 
must be consistent with WTO antidumping rules that specifically address 
exchange rates in antidumping calculations and with WTO subsidies rules 
that require that subsidies benefit a specific industry or industries. 
In general, currency undervaluation affects a wide variety of export 
products, rather than a specific industry.
    Another proposal would permit the application of U.S. 
countervailing duty laws and rules to non-market economies (NMEs), such 
as China and Vietnam. Until very recently, the U.S. Department of 
Commerce rejected the application of subsidies rules to NMEs. U.S. 
antidumping rules for NMEs already took into account the unreliability 
of price and cost information from companies operating in NMEs by 
relying on surrogate market values. The current proposal, long-rejected 
by the U.S. Department of Commerce, should be carefully scrutinized to 
ensure that it does not contravene U.S. obligations under WTO rules.
CONCLUSION--U.S. LEADERSHIP ON GLOBAL TRADING RULES IS CRUCIAL FOR U.S. 
        EXPORTS
    Implementing laws that are widely viewed as inconsistent with WTO 
rules sets an example for other countries to do the same. Reciprocal 
action by other countries, which are crucial export markets for the 
U.S. pork industry, would be disastrous for U.S. pork producers.
    The priority for the United States should be to lead the charge for 
improvements to other countries' trade laws that would improve market 
access for U.S. exports. For instance, a proposal in the current 
negotiations on trade remedy rules in the Doha Round would require more 
transparency from other countries by subjecting their antidumping and 
subsidy laws and regulations to periodic review by the WTO Secretariat. 
The U.S. system already is among the most transparent, if not the most 
transparent, in the world. Other countries should be required to 
increase the transparency of their systems. But this and other 
opportunities for positive change in the context of the negotiations 
could be jeopardized or lost as a result of U.S. actions that clearly 
contravene members' rights under the WTO.
    The leadership role of the United States is particularly important 
in helping to push forward the Doha Round negotiations. One of the 
biggest problems bedeviling the current negotiations is that many 
developing countries do not see clearly enough the benefits of WTO 
commitments to meeting their development objectives. These countries 
must have a basis to believe that developed countries--and the United 
States in particular--are prepared to both faithfully apply and abide 
by WTO rules. Otherwise, these developing countries' confidence in the 
multilateral trading system and WTO rule-making could be fatally 
undermined, with long-term results that would negatively impact U.S. 
exports.

Contact:
Nicholas D. Giordano, Esq.
Vice President and Council,
International Trade Policy
National Pork Producers Council

                                 
               Statement of North American Association of
                      Food Equipment Manufacturers
    Statement submitted for the record of the August 2, 2007 hearing of 
the Trade Subcommittee of the House Ways and Means Committee, by the 
North American Association of Food Equipment Manufacturers (NAFEM).
    The North American Association of Food Equipment Manufacturers 
(NAFEM) represents 600 North American firms that manufacture commercial 
equipment and supplies used for food preparation, cooking, storage and 
table service, and used by operators in restaurants, cafeterias, and 
other food service establishments. Our members employ more than 60,000 
men and women, and approximately 30 percent of these firms export 
products to service a global customer.
    We are submitting these comments in support of H.R. 1127, ``The 
American Manufacturing Competitiveness Act.'' We also ask the Committee 
to support the complete elimination of the practice of ``zeroing'' in 
administering trade remedy laws.
    We support trade remedy laws that are fairly administered. However, 
the ability of our members to remain competitive in world markets--both 
our domestic markets and our export markets--depends on fair access to 
raw materials at world competitive prices. If trade barriers drive the 
price of stainless steel in the United States above world prices, our 
competitiveness--our ability to employ our workers--suffers.
    To maintain competitiveness, we need standing in trade cases, as 
would be provided by H.R. 1127. And, if after a fair hearing of the 
facts and the issues, trade remedies are judged applicable, they must 
be set correctly. The practice of ``zeroing'' clearly leads to inflated 
calculations of duties--in effect a tax on our firms--should be 
eliminated

                                 
            Statement of Precision Metalforming Association
    Chairman Levin and Ranking Member Herger, thank you for accepting 
these written comments on behalf of the Precision Metalforming 
Association (PMA) and our 1,200 member companies located in 41 states.
    PMA is an Ohio-based national trade association representing the 
$91-billion metalforming industry of North America--the industry that 
creates precision metal parts, assemblies and products using stamping, 
fabricating and other value-added processes. The vast majority of PMA 
members are small and medium-sized manufacturers, known as SMMs. Many 
are second- and third-generation businesses averaging 100 employees. 
Our industry manufactures products in nearly every congressional 
district in the country, supplying the automotive, defense, medical, 
aerospace, agriculture, telecommunications and electrical industries, 
among others.
    For many small companies who manufacture in America, the issue of 
international trade is met with great skepticism, but it can bring 
tremendous opportunities. However, many of these opportunities are not 
realized due to our current trade laws, which often protect a small 
segment of the economy at the expense of millions of workers and 
businesses.
    PMA is a member of both the Consuming Industries Trade Action 
Coalition (CITAC) and the China Currency Coalition because our members 
are suffocating under our current antidumping and countervailing laws 
while at the same time facing increased illegal competition from 
overseas. We support H.R. 1127, legislation that will allow PMA members 
to utilize our trade laws and we support an effective, but balanced, 
legislative approach to address illegal currency misalignment.
H.R. 1127--Giving Manufacturers a Seat at the Table
    Middle-market manufacturers are being injured by the unintended 
consequences of our trade policies. Small middle-market manufacturers, 
in particular, like PMA members are sandwiched between our raw material 
suppliers and customers.
    We depend on a reliable, globally priced supply of steel which we 
source primarily from U.S. steel producers. Whether due to government-
imposed tariffs on imports or domestic supply shortages, major business 
disruptions and financial losses occur when our members cannot 
regularly acquire high-quality steel in a timely manner. With steel 
comprising 60 percent of our overall manufacturing costs, the effect on 
our ability to compete in the global market is considerable, especially 
when we are also facing illegal trade practices by our foreign 
competition.
    According to the most recent Department of Labor statistics, there 
are more than nine million steel-consuming jobs in this country, 
including nearly 300,000 in the Congressional Districts of members of 
the Trade Subcommittee. Because of our outdated trade laws, none of 
these employees or companies is represented in hundreds of cases at the 
Department of Commerce and the ITC. Whether regulatory or legislative, 
policymakers in Washington should consider the impact their decisions 
will have on small middle-market manufacturers. This is why we support 
H.R. 1127, legislation offered by Reps. Knollenberg and Kind to provide 
domestic industrial consumers with full party status and a seat at the 
table.
    In an effort to protect one segment of the economy through the 
application of tariffs, the Federal Government is making uninformed 
determinations that are tying the hands of U.S. manufacturers by 
protecting the few at the expense of millions of Americans. We believe 
H.R. 1127 is a reasonable approach that allows all U.S. manufacturers 
equitable access to our trade remedy law process. National trade policy 
should foster an environment that strengthens manufacturing in America, 
not close the door on our workers and employers.
Zeroing--An Artificial Tax on Manufacturers
    Purportedly intended to provide additional protection to 
businesses, the practice of zeroing illegally taxes raw materials that 
our members need to continue manufacturing in America. Although our 
members do not use a significant amount of imports in their production, 
taxing their greatest raw material input creates an artificial U.S. 
steel market, putting us at a significant disadvantage against foreign 
competitors.
    Supporters of zeroing seek to punish those who they believe are 
illegally importing products into the United States. However, the real-
world impact is that zeroing injures millions of small middle-market 
manufacturers who rely on globally priced quality raw materials. PMA 
believes the United States should comply with the WTO ruling and not 
use the zeroing methodology.
Fundamental Currency Misalignment
    SMMs are in the unfortunate position of facing restrictive domestic 
trade policies and illegal competition from foreign companies. 
Fundamental currency misalignment causes continued and protracted 
injury to U.S. businesses.
    In the 109th Congress and upon its introduction in this one, PMA 
supported the original legislation known as the Ryan-Hunter bill. We 
did so because we felt the legislation took a reasonable approach that 
sends a strong message to China to abide by their trade agreements. We 
supported this legislation despite the recognition that our members are 
unlikely to take advantage of this proposed law--as small businesses, 
we simply lack the resources to bring trade remedy cases to defend 
ourselves.
    Because China is a non-market economy (NME) experts have difficulty 
determining the exact level of misalignment and what amount of remedies 
to apply. We encourage the Treasury Department and USTR to work with 
our trading partners who are also acting against currency manipulators 
and take measured steps to counteract these illegal monetary practices.
    Fundamental currency misalignment by China and other nations 
provides a clear advantage for their companies and injures our 
membership. PMA continues to work with the Administration and members 
of Congress to develop a balanced approach to force a change in China 
and Japan's currency policies. I ask members of this Committee to help 
ensure that Congress passes an effective legislative solution that does 
not have an adverse impact on small middle-market manufacturers.
Conclusion
    Our trade laws should foster a domestic environment that will 
strengthen manufacturing in America. As this Committee considers moving 
comprehensive trade legislation, we encourage you and this Congress to 
take into consideration the impact your decisions will have on small 
and medium-sized businesses manufacturing in America.
    Any legislation, to address currency misalignment or otherwise, 
must include equitable protections for small middle-market 
manufacturers like members of the Precision Metalforming Association. 
Millions of American manufacturers deserve equal rights to participate 
in the trade remedy process. In order to stop the hemorrhaging of the 
U.S. manufacturing base, PMA believes Congress should update the trade 
laws to provide domestic industrial consumers with full party status 
before the DoC and ITC. H.R. 1127 is a matter of fundamental fairness 
that will provide balance in our trade policies.
    Small and medium-sized American manufacturers can only be globally 
competitive if the U.S. Government takes a more complete approach to 
its trade policies and remedies when foreign governments fail to abide 
by international trade agreements. Our members recognize we are 
competing against companies from around the world, but we cannot do it 
with one hand tied behind our backs--whether tied by foreign 
governments or our own.

                                 
            Statement of Retail Industry Leaders Association
    The Retail Industry Leaders Association (RILA) appreciates the 
opportunity to provide written comments to the Ways and Means Trade 
Subcommittee for the hearing on legislative proposals related to trade 
with China. Open trade with China that allows the free flow of both 
imports and exports is a critical component of retailers' sourcing and 
growth strategies. Each of the topics under consideration at this 
hearing--currency, trade remedies, and food safety--are important and 
timely, and can have a significant impact on U.S. retailer operations, 
the workers they employ, and the customers that they serve.
    RILA supports the longstanding U.S. policy of economic engagement 
with China. We advocate for a balanced trade policy that recognizes the 
tremendous opportunities and benefits that trade and investment with 
China bring to the U.S. economy, while also effectively addressing 
market access barriers and other unfair trade practices that affect 
U.S. companies. In addition, RILA supports a rules-based resolution of 
trade disputes in a manner consistent with World Trade Organization 
(WTO) obligations.
    By way of background, RILA promotes consumer choice and economic 
freedom through public policy and industry operational excellence. Its 
members include the largest and fastest growing companies in the retail 
industry--retailers, product manufacturers, and service suppliers--
which together account for more than $1.5 trillion in annual sales. 
RILA members provide millions of jobs and operate more than 100,000 
stores, manufacturing facilities and distribution centers domestically 
and abroad.
I. China Currency
    RILA members recognize that the valuation of China's currency is a 
significant concern, and we believe that China should implement steady, 
measured, and concrete movement toward a market-determined exchange 
rate. Toward this end, we support efforts by Treasury Secretary Henry 
Paulson through the Strategic Economic Dialogue and other fora to 
encourage broader financial sector reforms that will enable China to 
accelerate its removal of capital controls and allow market forces to 
fully determine the value of its currency.
    At the same time, the effect of China's exchange rate policy on 
bilateral trade is likely overstated. Economists note that the trade 
deficit with China is also the result of other factors, including a 
very low U.S. savings rate and a high personal savings rate in China. 
The low U.S. savings rate means that America must import surplus 
savings from abroad to fuel U.S. economic growth.
    RILA also advocates policies that promote more U.S. domestic 
savings, and encourages China to move from an economy based on export 
growth to one based on growth in domestic consumption. Congress and the 
Administration should encourage China to break down the remaining 
barriers to foreign investment in China's retail sector. Growth in the 
supply of retail outlets in China will increase consumer choice and 
competition in China and enable Chinese consumers to increase their 
purchasing options.
    There are several proposals to address currency that are actively 
under consideration in the 110th Congress. We provide comments on some 
of these proposals:
    Currency Misalignment as a Counteravailable Subsidy: 
Representatives Tim Ryan (D-OH) and Duncan Hunter (R-CA) have 
introduced legislation (H.R. 782 and H.R. 2942) to require the United 
States to treat foreign currency misalignment as a subsidy in the 
context of countervailing duty (CVD) cases. A companion bill, S. 796, 
has been introduced in the Senate by Senator Jim Bunning (R-KY), 
Senator Debbie Stabenow (D-MI), and others. These bills define exchange 
rate misalignment as ``an undervaluation of a foreign currency as a 
result of protracted large-scale intervention by or at the direction of 
a governmental authority in the exchange market. Such undervaluation 
shall be found when the observed exchange rate for a foreign currency 
is below the exchange rate that could reasonably be expected for that 
foreign currency absent the intervention.''
    H.R. 2942 retains the authors' original approach of making a 
misaligned currency a countervailable subsidy, and adds additional 
provisions to apply the CVD law to non-market economies (NMEs) and 
expand the available remedies to address misaligned currencies in 
antidumping (AD) calculations (as proposed in S. 1607, the Baucus-
Grassley bill).
    RILA Position: H.R. 782, H.R. 2942, and S. 796 would be 
counterproductive as the approaches are inconsistent with WTO rules. 
Despite claims by some, currency misalignment is not a WTO prohibited 
subsidy because it is not tied to exports or the use of domestic goods. 
Moreover, the WTO Agreement on Subsidies and Countervailing Measures 
(WTO SCM) requires that a countervailable subsidy: (1) confer a 
benefit, (2) involve a ``financial contribution'' from the government, 
and (3) be ``specific'' to an enterprise or industry. China's currency 
policy does not appear to meet these criteria because the government is 
not transferring anything of value to firms, and the policy is not 
specific to a particular enterprise, industry, or group of enterprises 
or industries. While the bill would revise U.S. law to assert that 
exchange rate misalignment satisfies the WTO criteria, that does not in 
itself make the legislation WTO-consistent. Enactment of the 
legislation could prompt harmful Chinese retaliation against U.S. 
exports to China.
    Dumping Adjustment for Currency Misalignment: Senate Finance 
Committee Chairman Max Baucus (D-MT), Ranking Member Charles Grassley 
(R-IA), Senator Charles Schumer (D-NY), and Senator Lindsay Graham (R-
SC) introduced the Currency Exchange Rate Oversight Reform Act (S. 
1607) to address concerns that certain countries maintain undervalued 
currencies. The bill would repeal current provisions related to 
currency manipulation included in the 1988 Trade and Competitiveness 
Act and would replace them with new provisions to require the U.S. 
Treasury Department (``Treasury'') issue semiannual reports identifying 
whether a country has a ``fundamentally misaligned'' currency. If so, 
Treasury would be required to initiate consultations with the country. 
If Treasury also finds that the government of such country is taking 
specific policy actions to maintain an undervalued currency (such as 
protracted large scale interventions in the currency market, 
significant accumulation of foreign reserves, or capital restrictions 
for balance of payment purposes) then the country would also face 
sanctions that increase over time if the currency misalignment is not 
remedied. The proposed sanctions include: U.S. Government consultations 
with international financial institutions, adjustments to price 
calculations in antidumping proceedings to account for a misaligned 
currency, a ban on Federal Government procurement with the country 
(unless it is a member of the WTO Agreement on Government Procurement), 
limitations on U.S. export financing programs in the country, 
opposition to multilateral lending programs in the country, dispute 
settlement proceedings in the WTO, and Treasury consultations with the 
Federal Reserve Board and other central banks to consider remedial 
intervention in currency markets. As reported by the Senate Finance 
Committee, the bill includes a binding Congressional resolution to 
disapprove the Administration's actions.
    RILA Position: RILA welcomes the consultation provisions and 
Administration discretion in the bill. We believe that currency 
concerns are best addressed through consultations and cooperation with 
trading partners and international financial institutions, rather than 
the use or threatened use of trade sanctions. The bill requires 
Treasury to calculate the amount by which a currency is undervalued. 
Such calculations would be highly subjective and RILA believes that the 
U.S. Government should not be in the business of determining what 
another country's currency value ought to be.
    The provision related to antidumping calculations is particularly 
problematic and is likely inconsistent with WTO obligations. 
Specifically, Article 2.4.1 of the WTO Antidumping Agreement requires a 
country to use the exchange rate on the date of sale, and it does not 
allow adjustments to that rate for an undervalued currency. Moreover, 
antidumping calculations would already reflect an undervalued currency 
in the U.S. price, rendering any further adjustments unnecessary. If 
the bill becomes law, China could successfully challenge the provision 
in the WTO and retaliate against U.S. exports until the measure is 
repealed.
    Dodd-Shelby bill: Senate Banking Chairman Chris Dodd (D-CT) and 
Ranking Member Richard Shelby (R-AL) introduced legislation (S. 1677), 
``The Currency Reform and Financial Market Access Act of 2007,'' that 
would strengthen the definition of ``currency manipulator'' as defined 
by Treasury. The bill eliminates the intent of the country in question 
as a factor for being named a currency manipulator, in contrast to 
current law. Within 30 days of having named a country as a currency 
manipulator, Treasury would have to submit a detailed plan, along with 
benchmarks, to Congress on how it will address the manipulation. In 
addition, the bill would require Treasury to enter into bilateral and 
multilateral discussions with the country as well as consult with the 
International Monetary Fund (IMF). The bill would give Treasury up to 
nine months to meet its goals and benchmarks before authorizing the 
initiation of an Article XV dispute on currency before the WTO. The 
bill also provides for a joint resolution of disapproval if Treasury 
fails to cite a country as a manipulator. Other provisions require 
Treasury to annually report to Congress on barriers to trade for 
financial services firms as well as include relevant developments from 
the U.S.-China Strategic Economic Dialogue (SED).
    RILA Position: RILA welcomes the consultation provisions in the 
bill as we believe that currency concerns are best addressed through 
consultations and cooperation with trading partners and international 
financial institutions, rather than the use or threatened use of trade 
sanctions. At the same time, the bill may quickly escalate tensions 
with trading partners by essentially forcing Treasury to label China as 
a currency manipulator, with no means for the President to waive such 
action. The provision to initiate WTO consultations on currency 
manipulation under Article XV raises concerns. It is not clear how such 
a challenge could be successful.
    In addition, statements by Chairman Dodd that he would welcome the 
addition of legislation to make currency manipulation a countervailable 
subsidy are not helpful. RILA will strongly oppose any such amendment.
II. Trade Remedies
    U.S. trade remedy laws (for example, antidumping and countervailing 
duty laws, and safeguards laws) serve an important role in U.S. trade 
policy. By providing a process by which injured domestic producers may 
seek relief from unfair imports, trade remedy laws allow the broader 
positive trade agenda to move forward. In a globalized trading system, 
this is critical. RILA members have a significant interest in the 
balanced administration of U.S. import laws, as they depend on imports 
both of finished consumer products and of production inputs for 
merchandise that will eventually be sold at retail. RILA members are 
keen to ensure that those laws are fairly and neutrally applied, and 
not subject to sudden or unwarranted changes that increase their 
restrictiveness.
    Trade remedy laws should remain focused on providing relief where 
an objective analysis warrants it, and they should not be used or 
written to provide or allow blanket protectionism. U.S. trade remedy 
laws should be balanced and fair, inclusive of the participation of all 
affected parties, and based on commercial practices. Nearly all of the 
proposed trade remedy issues that are the subject of this hearing do 
not only apply to China. As Congress considers whether to make changes 
to these laws, policymakers must consider the impact that these changes 
will have on all of our trading partners, and on our international 
trade obligations, and not just on trade with China.
Section 421 Special China Safeguard
    The section 421 safeguard is an extraordinary provision because:

      it applies only to China,
      the threshold for injury is exceedingly low,
      and it does not require an allegation an unfair trade.

    Section 421 was the result of intense negotiations both within the 
United States and with China as part of its WTO accession, and a key 
component to balance out these extraordinary concessions is the 
President's discretion to decline to provide import relief if he finds 
that the taking of such action would have an adverse impact ``clearly 
greater'' than the benefits of such action or, in extraordinary cases, 
he determines that it would cause serious harm to U.S. national 
security.
    The requirement in the current statute to evaluate the potential 
benefits of trade restrictions against potential costs maintains this 
important balance. As already noted, section 421 does not require an 
allegation of unfair trade, and it has a very low threshold for 
industry injury. Within this framework, it makes little sense to impose 
a remedy that only benefits a narrow economic interest if it would 
result in serious and disproportionate harm to a wider segment of the 
U.S. economy.
    Some lawmakers have suggested that the President's discretion to 
deny import relief should be removed. Full elimination of the 
President's discretion is far too restrictive an approach. Moreover, 
any modification to section 421 must provide the President the 
authority to determine the appropriate remedy, not just adopt the 
proposal of the ITC.
Application of Countervailing Duty Law to Non-Market Economy Countries
    Legislation has been introduced (H.R. 1229) to allow countervailing 
duties (CVDs) to be applied to subsidized and injurious imports from 
nonmarket economy (NME) countries such as China, Vietnam, and Armenia.
    There are three main concerns with H.R. 1229 as it was introduced. 
The bill would provide relief in addition to that provided under the 
special NME methodology in antidumping (AD) proceedings and, unless the 
bill is modified, it would create the potential for inappropriate and 
WTO-inconsistent remedies that are disproportionate to the subsidies 
granted. Separately, H.R. 1229 would also insert political influence in 
what should remain an independent, quasi-judicial process, and require 
the U.S. Department of Commerce (DOC) to employ methodologies to 
calculate the level of subsidization that on their face are 
inconsistent with WTO commitments.
    Relief Should Not Be Disproportionate to the Subsidies Granted: WTO 
rules bar trade remedies from being applied at a rate higher than the 
subsidy found to exist. (See Article 19.4 of the WTO Agreement on 
Subsidies and Countervailing Measures.) As such, when applying the 
countervailing duty law to products from NME countries, analysts must 
be careful to ensure that any duties applied are commensurate with 
subsidies granted, particularly if there is both an AD proceeding and a 
CVD proceeding on the same product.
    Unlike AD cases that involve market economy countries, the AD 
methodology for NME countries does not employ a NME producer's actual 
prices or costs but instead uses subsidy-free values from a 
``surrogate'' market economy country. As a result, this NME methodology 
not only creates a market-based benchmark for calculating a dumping 
margin, it also captures many subsidies provided by the NME government. 
Thus, applying the CVD law concurrent with the NME methodology in AD 
proceedings against the same product could result in relief that is 
disproportionate to the subsidies granted.
    Congressional Role in Market Economy Status: H.R. 1229 includes a 
provision to require Congressional approval of an Administration's 
determination to grant market economy status to a country under the 
U.S. AD statute. Such approval is unconstitutional and would have 
several negative effects.
    Congress' failure to pass an approval resolution would effectively 
veto the Administration's determination without presenting legislation 
to the President, which the Supreme Court ruled is an unconstitutional 
violation of the Presentment Clause in INS v. Chadha. Moreover, 
requiring a Congressional vote on market economy status undermines the 
objective, factual and case-by-case analysis of the economic criteria 
set forth that the graduation determination requires. This would send 
the wrong signal to China and our other trading partners, which might 
seek to replicate such congressional interventions in their trade 
remedy analyses, which would have very adverse effects on U.S. 
exporters. A constitutional way to give Congress broader oversight of 
these decisions is through a consultation and layover requirement, 
similar to that required for certain Presidential proclamations.
    Legislative Language on Surrogate Country Benchmarks Should Track 
WTO Commitments: Article 14 of the WTO Agreement on Subsidies and 
Countervailing Measures generally requires a country to use benchmark 
rates prevailing within the exporting country to measure a particular 
subsidy. As part of China's accession to the WTO, all parties, 
including the United States, agreed that benchmark rates within China 
would be used unless ``special difficulties'' arise and it is not 
practical to use and/or adjust Chinese benchmarks. (PRC Accession 
Protocol, Part I, 15(b)) Thus, the WTO requirement is to presume to use 
Chinese benchmarks.
    The language in H.R. 1229 suggests that, even if China is 
determined to be a market economy, the DOC must still apply special 
procedures in determining subsidy benchmarks for China. There is no 
basis in the law for singling out certain market economies for 
discriminatory treatment and the current law and regulations provide 
DOC sufficient discretion to address any benchmarking issues that may 
arise in market economies. This language therefore is unnecessary and 
inappropriate.
Zeroing and a Prospective Normal Value Dumping Regime
    ``Zeroing'' refers to the practice of considering only those U.S. 
sales where normal value (usually the home market sales price) is 
greater than the U.S. price and ignoring transactions where the reverse 
occurs. Zeroing artificially inflates antidumping margins by adjusting 
negative dumping comparisons to zero. As a result, zeroing produces 
higher dumping duties than the data support, and these artificially 
increased duties make goods more expensive than they should be. The WTO 
has repeatedly ruled that zeroing as applied by the United States is 
inconsistent with WTO obligations.\1\ RILA believes that the zeroing 
policy as has been applied in the United States is harmful and unfair 
and should be ended in all antidumping proceedings.
---------------------------------------------------------------------------
    \1\ The WTO also ruled against the European Union (EU) on its 
zeroing policy. The EU has since ended its zeroing policy.
---------------------------------------------------------------------------
    Some lawmakers have expressed the opinion that the DOC should 
continue to zero despite the clear potential for WTO-sanctioned 
retaliation from trading partners. To allow the continued use of 
zeroing, RILA respectfully suggests that Congress should consider 
changing the U.S. antidumping regime to a prospective normal value 
system (as done in Canada). This is the only way in which zeroing may 
continue in a WTO-consistent manner.
    Under a prospective normal value system, the United States could 
effectively continue to zero because normally in practice duties would 
be collected entry by entry. When the U.S. price is below the normal 
value, duties are collected; when the U.S. price is above normal value, 
duties are not collected but other entries are not offset by the 
negative dumping (thus zeroing continues).
    In addition to the continued use of zeroing, policymakers should 
consider other benefits of a prospective normal value system:

      Significantly Improved Duty Collections: Since enactment 
of the Continued Dumping and Subsidy Offset Act (otherwise known as the 
``Byrd Amendment''), it has come to light that the U.S. Customs and 
Border Protection (CBP) has tremendous challenges in collecting certain 
antidumping and countervailing duties.

          There are hundreds of millions of dollars in unpaid 
        duty bills.
          Changing to a prospective normal value system would 
        end this problem because in most instances the final duty bill 
        would be collected at the time of entry.
      Fairer Treatment of Importers: The U.S. retrospective 
system for collecting dumping duties creates significant uncertainty 
because final duty bills may be assessed years after the entry (with 
interest), and long after the good is sold to the consumer.

          Each time the Congress compiles a miscellaneous 
        tariff bill, several private bills have been offered to provide 
        relief from retrospective dumping duties. Sponsors of these 
        bills believe the retrospective system is unfair to their 
        constituents.
          The biggest concern that large importers and 
        retailers raise with the U.S. antidumping and countervailing 
        duty regime is the unpredictability of the retrospective 
        system--more so than the actual duties themselves.
          Periodic Reviews Still Possible: A prospective system 
        would still allow reviews of the normal value whenever an 
        interested party requests one.
Bratsk Decision from the Federal Circuit
    In the ``Bratsk'' decision last year (Bratsk Aluminum Smelter v. 
United States, 444 F.3d 1369 (Fed. Cir. 2006)), the Court of Appeals 
for the Federal Circuit ruled that the U.S. International Trade 
Commission (ITC) must consider whether imposing antidumping duties 
would benefit the domestic industry or instead result in an increase of 
imports from non-subject countries without any beneficial impact on 
domestic producers. If the latter, then the court said no duty shall be 
imposed. The decision is a reasonable one because there is no valid 
reason to impose antidumping or countervailing duties on imports from a 
particular country if imports from elsewhere will replace subject 
imports. The domestic producers will not get relief from the duties, 
yet U.S. manufacturers and consumers are forced to pay higher costs. 
The Court recognized that this lose-lose scenario is inappropriate. 
Some have suggested that Congress should overturn the Bratsk decision 
through legislation. RILA would oppose such proposals.
Inclusion of Consuming Interests in Trade Remedy Cases_the American 
        Manufacturing Competitiveness Act
    U.S. trade remedy laws are decidedly exclusionary. It is unfair 
that importer and consuming industries are barred from participating in 
antidumping and countervailing duty proceedings, and policymakers are 
forced to make decisions with partial information--even though the 
outcome of such cases can have a tremendous impact on importer and 
industrial consuming businesses (particularly small businesses with 
limited resources). The American Manufacturing Competitiveness Act 
(H.R. 1127) seeks to remedy this unfairness by allowing industrial 
consumers to participate in trade remedy cases, and requiring 
policymakers to consider the benefit versus the harm of imposing duty 
orders. As lawmakers consider changes to U.S. trade remedy laws, RILA 
believes H.R. 1127 should be included in any legislative package that 
moves forward.
III. Food Safety
    RILA members place the highest priority on ensuring the safety and 
quality of the products they sell to their customers, regardless of 
whether the products are produced domestically or abroad. To this end, 
RILA members have vigorous quality assurance requirements and 
enforcement mechanisms. The size and market share of RILA members 
provides them the ability and resources to ensure their suppliers 
produce the highest quality products that meet rigorous safety 
standards.
    Effectively ensuring product safety requires a close partnership 
between the private sector and the U.S. Government. RILA stands ready 
to work with government policymakers to enact policies that strengthen 
consumer confidence and ensure that products are safe, high-quality, 
affordable, and readily available.
    Food Safety Policies Should Be Effective, Efficient, and Consistent 
with International Trade Obligations: As Congress considers proposals 
to improve product safety, RILA suggests that any proposal should 
ensure that all products meet equivalent high standards, regardless of 
whether the good is produced domestically or abroad. Any food safety 
and quality assurance system must also be effective and efficient, and 
not be used for protectionist purposes.
    RILA members are able to bring great value to consumers through 
sophisticated just-in-time inventory systems. The slightest disruptions 
to the supply chain could keep essential food items from hitting store 
shelves, depriving consumers of their regular products. In the case of 
fresh produce, delay could cause millions of dollars of fruit and 
vegetables to be stuck on cargo ships and truck beds and left to rot.
    U.S. Regulators Need Sufficient Resources: As the volume of U.S. 
food imports has risen, the budgets for agencies that oversee food 
safety have generally remained stagnant or been cut in recent years. 
These agencies provide testing, certification, and monitoring of food 
products--on top of what retailers and product manufacturers already 
do--to help secure the food supply chain in a post-9/11 world. Food 
safety should be a critical homeland security priority, and it deserves 
proper funding.
    RILA supports increasing the annual budgets of the regulatory 
agencies with responsibility over food and consumer product safety. At 
the same time, it would be a mistake to demand that the importer 
community alone bear the costs for a strengthened food safety regime. 
RILA instead encourages Congressional authorizers and appropriators to 
establish a dedicated funding stream from the general treasury to 
ensure the safety of food and consumer products sourced both 
domestically and abroad. Additional fees and hurdles placed solely on 
the import community could be viewed as protectionist and would 
undermine the credibility and effectiveness of the new regime.
IV. Conclusion
    RILA appreciates the opportunity to provide comments for this 
hearing. Trade with China is a critical component of RILA members' 
strategies for sourcing and global growth. China's growing market of 
1.3 billion people presents both opportunities and challenges, and the 
legislative proposals under consideration can have a significant and 
long-lasting impact on our bilateral trading relationship. Some 
proposals, if not modified, would cause significantly more harm to U.S. 
interests than provide benefits to select economic groups.
    While RILA members recognize that legitimate concerns have been 
raised regarding certain Chinese policies, we believe any legislative 
proposals must also take into account the tremendous benefits that 
trade with China brings to U.S. companies, their workers, and U.S. 
consumers. Also, as Congress considers changes to the trade remedy 
rules or product safety regime, policymakers should be as inclusive as 
possible to allow continuing input from all interested parties.
    If you have any questions on this statement or require any 
assistance, please contact Lori Denham, Executive Vice President, 
Government Affairs and Industry Operations, or Andrew Szente, Director, 
Government Affairs.

                                 
                     Statement of Robert S. Nichols
Introduction
    I'd like to thank Chairman Levin and Ranking Member Herger for the 
opportunity to submit this written statement to the Subcommittee 
regarding its important work on the impact of U.S.-China trade 
relations on American manufacturers, consumers, and workers. The 
emergence of China will not only be one of the great economic stories 
of the 21st century, but one of the most significant events in economic 
history. The integration of a fifth of the world's population into the 
global economy not overnight, but over time has truly profound 
implications for U.S. economic growth and job creation. Given the 
reality and inevitability of China's continued emergence, the task 
before Congress and other U.S. policy makers is to ensure that America 
participates constructively in China's development, and in ways that 
work for American producers, workers, and consumers.
    I am president and chief operating officer of the Financial 
Services Forum. The Forum is an association comprising the chief 
executive officers of 20 of the largest and most diversified financial 
institutions with business operations in the United States. The Forum 
works to promote policies that enhance savings and investment and that 
ensure an open, competitive, and sound global financial services 
marketplace. As a group, the Forum's member institutions employ more 
than 2 million people in 175 countries and hold combined assets of more 
than $16 trillion an amount greater than the annual economic output of 
the United States, United Kingdom, and France combined.
    In addition to our other activities, the Forum is also the chairing 
organization of the ENGAGE CHINA coalition a partnership among eight 
financial services trade associations united in our view that active 
engagement with China remains the most constructive means of ensuring 
that our two nations mutually benefit from our growing economic 
relationship.\1\ More specifically, the coalition is strongly of the 
view that a more open, competitive, and effective Chinese financial 
sector is a prerequisite if China is to achieve its own economic goals, 
and if the issues that have complicated the U.S.-China economic 
relationship particularly further currency reform and the trade 
imbalance are to be satisfactorily addressed.
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    \1\ American Bankers Association, American Council of Life 
Insurers, American Insurance Association, The Council of Insurance 
Agents & Brokers, The Financial Services Forum, The Financial Services 
Roundtable, Investment Company Institute, and the Securities Industry 
and Financial Markets Association.
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Importance of China to the Global and U.S. Economies
    The 20 member CEOs of the Financial Services Forum meet twice a 
year, our most recent meeting occurring this past April. At each 
meeting, we conduct a survey regarding our members' outlook on the U.S. 
and global economies. As part of the survey, we ask our CEOs to rate a 
number of factors, including technological innovation, improved 
education, freer and more open trade, and growth in a number of regions 
around the world, to reflect their likely contribution to global 
economic growth over the next decade. Our CEOs have consistently rated 
the emergence of China as the single most important source of growth 
for the global economy.
    The rate of China's expansion and the impact of its integration 
into the global trading system are unprecedented in the history of the 
world's economy. As recently as 1999, China was the world's 7th largest 
economy. China is now the world's 4th largest economy and will likely 
overtake Germany as the 3rd largest later this year.\2\ Government 
figures released in mid July showed that China's economy expanded at an 
annualized rate of 11.5 percent in the first half of 2007, its fastest 
rate of growth since 1994. China has grown at an average annual rate of 
better than 9 percent for two decades. If such growth is maintained, 
China could surpass Japan as the world's second largest economy by 
2020.\3\ Together, the United States and China already account for half 
of the world's economic growth.
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    \2\ See ``China Growth Revs Faster, Escalating Policy Pressure,'' 
The Wall Street Journal, July 20, 2007.
    \3\ See ``China's GDP Poised to Top Germany's as Power Shift Speeds 
Up,'' The Wall Street Journal, July 16, 2007.
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    China's emergence is also stimulating growth and job creation in 
the United States. Since China's joined the World Trade Organization 
(WTO) in December of 2001, trade between the United States and China 
has nearly tripled, exports to China have grown at five times the pace 
of U.S. exports to the rest of the world, and China has risen from our 
9th largest export market to our 4th largest.
    It's important to point out that as staggering as these figures 
are, they represent only the beginning of China's eventual impact. 
Nearly all of China's economic activity is currently centered in the 
large, industrialized cities of China's eastern coast, and involves 
only about 35 percent of China's 1.3 billion people. More than 800 
million people in China's central and western interior an eighth of the 
world's population are poor subsistence farmers, completely unengaged 
in the global economy. Even the 500 million people who live in China's 
eastern cities, produce its manufactured goods, and comprise China's 
rapidly growing middle and affluent classes, have so far had a somewhat 
muted impact on the global economy.
    This is because Chinese households historically save anywhere from 
a third to as much as half of their income, as compared to single digit 
savings rates in the United States and Europe. This pronounced 
propensity to save is related to the declining role of the state and 
the fact that most Chinese do not have access to the financial products 
and services that we take for granted mortgages, 401ks, pensions, 
credit cards, and life, property, and health insurance products that 
would help them save, borrow, invest, insure against risk, and, 
therefore, consume at higher levels.
    If China's economy continues to grow and diversify, and if China's 
citizens enjoy increasing access to a wider range of modern financial 
products and services that help to eliminate the need for such 
``precautionary savings,'' China's 1.3 billion potential consumers will 
begin to consume at more normal levels, with profound implications for 
global economic growth and job creation, as the following comparison 
demonstrates:
    Last year, the United States exported to Japan goods and services 
worth $60 billion approximately the same amount exported to China ($55 
billion). But China's population of 1.3 billion is ten times Japan's 
population of 127 million. In per capita terms, therefore, China 
consumed one-tenth the amount of American goods and services as Japan. 
If China's citizens were to eventually consume American-made goods and 
services at the same rate that Japan's citizens did last year, the 
United States would export more than $600 billion worth of goods and 
services to China, 11 times what America exported to China last year, 
an amount equivalent to 5 percent of America's GDP, and more than twice 
what we imported from China last year replacing the trade deficit with 
a significant surplus.
Pace and Structure of China's Growth has Created Challenges--for China 
        and the United States
    Despite China's remarkable economic development over the last 25 
years, the structure and pace of its economic growth has produced 
significant problems, both economic and social. The country's fixed 
investment and export driven development more factories to produce more 
goods for world markets has left China vulnerable to economic slowdown 
elsewhere in the world (particularly in the United States), and to 
rising energy, materials, and labor costs. The manufacturing and export 
focus of the economy has also led to widening disparities between rich 
and poor, made worse by the closing or privatization of state owned 
enterprises, which had provided most healthcare services in China. 
There are, in effect, two Chinas a wealthy elite and a developing 
middle class along the coast, and the 800 million poor in the central 
and western interior.\4\ The worsening wealth gap and the resulting 
social dichotomy have led to increasing political instability. Reports 
indicate that as many as 100 significant incidents of protest occur in 
China every day.
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    \4\ According to an unpublished report by the World Bank that has 
been shared with the Chinese government, from 2001 to 2003, as China's 
economy expanded by nearly 10 percent a year, average incomes of the 
poorest 10 percent of Chinese households fell by 2.5 percent. See ``In 
China, Growth at Whose Cost,'' The Wall Street Journal, November 22, 
2006.
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    Almost immediately after assuming leadership at the 16th Chinese 
Communist Party Congress in 2002, President Hu Jintao and Premier Wen 
Jiabao sought to distinguish themselves as the ``putting people-first 
administration.'' They also articulated the notion of a ``scientific 
viewpoint of development,'' by which economic growth is to be balanced 
with social priorities such as a more equitable distribution of income, 
poverty reduction, education, improved medical care, and environmental 
protection.\5\ Such adjustments were necessary, according to the new 
leadership, to establish a more sustainable course for China's long-
term economic growth and to achieve a more ``harmonious'' which is to 
say, a more equitable and stable society.
---------------------------------------------------------------------------
    \5\ See Wen Jiabao, closing speech at the Specialized Research 
Course for Province-Level Cadres on Establishing and Implementing a 
Scientific Developmentalist Viewpoint,'' February 21, 2004.
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    These priorities became the framework of China's 11th Five-Year 
Plan\6\, which broadens China's development policy beyond simply 
promoting rapid economic growth to include a clear emphasis on ``common 
prosperity''--that is, an effort to extend westward the economic gains 
enjoyed principally in China's east coast urban areas. The FiveYear 
Plan seeks to address the twin problems of an economy perceived as 
being too dependent on external demand and the social consequences of 
the widening wealth gap by: 1) maintaining high rates of growth and job 
creation; 2) encouraging a structural shift from industry to services; 
3) promoting the development of domestic consumer demand; 4) reducing 
poverty; and, 5) ensuring a more equitable distribution of opportunity 
and prosperity.
---------------------------------------------------------------------------
    \6\ The Five-Year Plan, the 11th since 1953, was approved by the 
fifth plenary session of the 16th Communist Party Central Committee in 
October of 2005 and ratified by the National People's Congress this 
past spring.
---------------------------------------------------------------------------
    It is important to note that each of these goals is utterly aligned 
and consistent with the interests of the U.S. economy and working 
Americans. A growing, more diversified Chinese economy that emphasizes 
a more active Chinese consumer is more stable, less dependent on 
exports, more in keeping with China's responsibilities in the global 
trading system, and an enormously important and ever expanding market 
for American-made products and services.
    But if China is to achieve these ambitious economic goals and, in 
doing so, serve as an ever-increasing source of U.S. economic growth 
and job creation it needs an open, modern, and effective financial 
system. Unfortunately, at present, China's primitive and ineffective 
financial system represents perhaps the greatest threat to the 
continued growth and diversification of the Chinese economy.
Critical Importance of Financial Sector Reform in China
    Capital is the lifeblood of any economy's strength and well being, 
enabling the investment, research, and risk-taking that fuels 
competition, innovation, productivity, and prosperity. The financial 
system can be thought of as an economy's cardiovascular system the 
institutional and technological infrastructure for the mobilization and 
allocation of the economy's lifeblood, investment capital.
    As a financial sector becomes more developed and sophisticated, 
capital formation becomes more effective, efficient, and diverse, 
broadening the availability of investment capital and lowering costs. A 
more developed and sophisticated financial sector also increases the 
means and expertise for mitigating risk--from derivatives instruments 
used by businesses to avoid price and interest rate risks, to insurance 
products that help mitigate the risk of accidents and natural 
disasters. Finally, the depth and flexibility of the financial sector 
is critical to the broader economy's resilience its ability to weather, 
absorb, and move beyond the inevitable difficulties and adjustments 
experienced by any dynamic economy. For all these reasons, an 
effective, efficient, and sophisticated financial sector is the 
essential basis upon which the growth and vitality of all other sectors 
of the economy depend. It is the ``force multiplier'' for progress and 
development, amplifying and extending the underlying strengths of a 
growing economy.
    Given the unique and critical role an effective and efficient 
financial sector plays in any economy, reform of China's financial 
sector is a prerequisite to China achieving its own economic goals. 
Financial sector reform is also a prerequisite to meaningfully 
addressing issues that have complicated the U.S.-China economic 
relationship, particularly greater currency flexibility and reducing 
trade imbalances.
Achieving China's Economic Priorities
      Maintaining High Rates of Growth and Job Creation: 
Maintaining exceptional rates of economic growth and job creation in 
China increasingly depends on an effective system for mobilizing 
investment capital. At present, China's weak banking system 
intermediates nearly 75 percent of the economy's total capital, 
compared to about half in other emerging economies and less than 20 
percent in developed economies. Despite some improvements in recent 
years, Chinese banks' credit analysis, loan pricing, risk management, 
internal controls, and corporate governance practices remain 
inadequate. Meanwhile, China's equity and bond markets are among the 
smallest and least developed in the world. More fully developed capital 
markets would provide healthy competition to Chinese banks and 
facilitate the development and growth of alternative retail savings 
products such as mutual funds, pensions, and life insurance products. 
And by broadening the range of funding alternatives for emerging 
companies, more developed capital markets would greatly enhance the 
flexibility and, therefore, the stability of the Chinese economy.

    Shifting from a Manufacturing for Export to a Services Based 
Economy: Facilitating China's desired transition to a more services-
based economy will require that competitively priced capital and credit 
be channeled to the most promising emerging service businesses, and 
that the array of financial products and services emerging businesses 
require loans, letters of credit, accounts management services, asset 
management, and insurance products be made available.
    Activating the Chinese Consumer: Activating the Chinese consumer 
requires the availability of financial products and services personal 
loans, credit cards, mortgages, pensions, insurance products, and 
insurance intermediary services that will eliminate the need for such 
``precautionary savings'' and facilitate consumption.
    In sum, a more modern, open, and competitive financial system would 
greatly enhance the productive capacity and stability of the Chinese 
economy and facilitate the achievement of China's economic goals, as 
described in the 11th Five-Year Plan. Indeed, research conducted by 
McKinsey indicates that genuine reform of its financial system would 
expand China's economic output by as much as 17 percent, or an 
additional $320 billion a year.\7\
---------------------------------------------------------------------------
    \7\ See ``Putting China's Capital to Work: The Value of Financial 
System Reform,'' by Diana Farrell, Susan Lund, and Fabrice Morin, The 
McKinsey Global Institute, May 2006.
---------------------------------------------------------------------------
Addressing Issues with the United States
    A more effective and efficient financial sector in China is also a 
prerequisite to successfully addressing issues that have complicated 
the U.S.-China economic relationship, particularly further currency 
reform and meaningfully reducing the trade imbalance.
    Market-determined exchange rate: A Chinese authorities have 
repeatedly argued reasoning generally acknowledged by most foreign 
analysts that a more rapid shift to a market-determined yuan is not 
possible given the underdeveloped state of China's capital markets. 
More specifically, China's banks, securities firms, and other 
businesses lack the expertise to develop and trade derivatives and 
other structured instruments used to hedge the risk associated with 
greater currency volatility. Sophisticated derivative products and 
hedging techniques provided by foreign financial services firms would 
clearly diminish such concerns.
    Reduction of trade deficit: Reorienting the financial habits of 
China's population from precautionary savings to a better balance 
between savings and consumption while progressively bringing more than 
a billion Chinese into the global economy is the most powerful remedy 
to the U.S.-China trade imbalance.
Status of Financial Sector Reform in China
    In addition to working to meet its WTO commitments, China has also 
taken important steps to liberalize its financial sector and improve 
financial regulation. For example:
    The financial sector has been transformed from a single bank system 
to a more diversified system with a central bank the People's Bank of 
China at the helm.
    Meaningful steps have been taken to eliminate state-directed policy 
lending, and amendments to the Law on Commercial Banks and the Law on 
the Peoples Bank of China have laid the foundations for commercially 
viable lending.
    The China Banking Regulatory Commission (CBRC) was established in 
April of 2003 to oversee all banks in China, investigate illegal 
banking operations, and punish violations of law.
    Interbank, equity, and foreign exchange markets have been 
established and important progress made toward implementing monetary 
policy through market mechanisms rather than by government fiat.
    Despite these achievements, China's financial sector still faces 
serious challenges:
    Non-commercial lending to state-owned enterprises continues, 
although on a diminishing scale. The stock of nonperforming loans on 
banks' balance sheets remains high.
    Banks are undercapitalized and lending practices, risk management 
techniques, new product development, internal controls, and corporate 
governance practices remain inadequate.
    Prudential supervision and regulation of the financial sector is 
opaque, applied inconsistently, and lags behind international best 
practices.
    China's equity and bond markets remain small and underdeveloped.
    With these problems in mind, efforts to build on the progress 
achieved to date should focus on:
    The critical importance of open commercial banking, securities, 
insurance, pension, and asset management markets to promoting the 
consumption-led economic growth that China's leaders seek;
    The clear benefits to China of increased market access for foreign 
financial services firms--namely the introduction of world-class 
expertise, technology, and best practices--and the importance of 
removing remaining obstacles to greater access.
    Foreign investors in Chinese banks remain limited to 20 percent 
ownership stakes, with total foreign investment limited to 25 percent. 
The China Securities Regulatory Commission (CSRC) continues to limit 
foreign ownership of Chinese securities firms to 33 percent and foreign 
ownership of Chinese asset management companies to 49 percent. Worse, 
since December of 2005, a de facto moratorium on foreign investments in 
Chinese securities firms has been imposed. Foreign life insurance 
companies remain limited to 50 percent ownership in joint ventures and 
all foreign insurers are limited to 25 percent equity ownership of 
existing domestic companies.
    While these caps were agreed to in the course of WTO accession 
negotiations, the limitations are among the most restrictive of any 
large emerging market nation and stand in the way of a level playing 
field for financial service providers. Most importantly, they limit 
access to the products, services, know-how, and expertise that China 
needs to sustain high rates of economic growth, and that China's 
businesses and citizens need to save, invest, and create and protect 
wealth. For these reasons, the United States and other WTO members have 
urged China to relax these limitations.
    China also continues to restrict access by foreign credit card 
companies. Banks in China are permitted to issue cards with a foreign 
logo only if they are co-branded with the logo of China Union Pay 
(CUP), an entity created by the PBOC and owned by participating Chinese 
banks. In addition, all yuan-denominated transactions must be processed 
through CUP's network, while the network of the foreign credit card 
company is used only to process foreign currency transactions.
    Non-discriminatory national treatment with regard to licensing, 
corporate form, and permitted products and services.
    Non-discriminatory national treatment with regard to regulation and 
supervision.
    Regulatory and procedural transparency.
    Attracting sophisticated institutional investors to China's capital 
markets through the expansion of the Qualified Foreign Institutional 
Investor (QFII) and Qualified Domestic Institutional Investor (QDII) 
programs.
    Priority issues from the Transitional Review Mechanism that remain 
unresolved.\8\
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    \8\ China's WTO accession included the Transitional Review 
Mechanism (TRM) as a means for ongoing review of China's compliance 
with its obligations, and to provide those elements of the Chinese 
government supportive of further economic reform with information and 
evidence to urge full compliance with China's WTO commitments.
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The Importance of a Market-Determined Yuan
    With the importance and status of financial sector reform in China 
as a backdrop, let me focus for a few minutes on the importance of a 
market-determined Chinese yuan. In recent years the discussion in 
Washington regarding the U.S.-China economic relationship has focused 
in large part on China's currency policy. Many policymakers assert that 
an undervalued yuan makes cheap Chinese exports even cheaper, giving 
Chinese producers an unfair advantage over American companies and 
contributing to the U.S. trade deficit with China.
    A market-determined yuan is important for the United States and 
especially for China. Foreign exchange market intervention by the 
People's Bank of China buying dollars with yuan has boosted liquidity 
in China's economy, thwarting government efforts to scale back 
excessive bank lending and fixed investment. Speculative money flowing 
into China in anticipation of a revaluation is also undermining 
government objectives. Finally, allowing the yuan to more fully float 
according to market forces would free the PBOC to pursue monetary 
policies that advance China's macroeconomic goals. For these reasons as 
well as the priority of a more fair and transparent trade relationship 
U.S. policymakers should continue to press China to accelerate progress 
toward a market-determined yuan.
    For years, the United States has worked with China toward achieving 
a yuan whose value is determined by market forces. Indeed, shortly 
after taking office, the Bush Administration committed to helping China 
develop the capital markets know-how and expertise necessary to end the 
yuan's peg to the dollar, providing massive technical assistance. And 
those efforts have begun to bear fruit. In July of 2005, China revalued 
its currency upward by 2 percent. Since mid-2006, the pace of 
appreciation has accelerated, averaging about 4.9 percent a month at an 
annualized rate, and quickening to around 5.4 percent in the first few 
months of 2007, as China has become more confident about the resilience 
of its economy. In total, the yuan has appreciated by about 8 percent 
since July of 2005.
    This is important progress but, clearly, much more progress is 
needed. Given the importance of a market-determined yuan to the 
economic objectives of both countries, the United States should 
continue to press China to redouble its reform efforts and accelerate 
movement toward a freely floating yuan.
    But even as we continue to press China on the yuan, we should not 
allow the currency issue to overshadow the broader potential of the 
U.S.-China economic relationship. Indeed, it should be noted that the 
short term effect of a significant appreciation in the yuan would 
likely be to make the trade deficit worse. Because a higher-valued yuan 
would mean higher prices for imported Chinese goods, and because the 
process of finding cheaper alternatives to more expensive Chinese goods 
takes time, the trade deficit would likely get worse before getting 
better a phenomenon economists call the J-curve effect.
    Of far greater significance to the policy goals of maintaining 
strong U.S. economic growth and job creation is for China to achieve a 
more sustainable model of continued economic growth, and for its 
population of 1.3 billion a fifth of the world's population to begin 
consuming at higher levels. Both goals require reform of China's 
financial sector.
Conclusion
    The fastest way for China to develop the modern financial system it 
needs to achieve more sustainable economic growth, allow for a more 
flexible currency, and increase consumer consumption is to import it 
that is, by opening its financial sector to greater participation by 
foreign financial services firms. Foreign institutions bring world-
class expertise and best practices with regard to products and 
services, technology, credit analysis, risk management, internal 
controls, and corporate governance. In addition, the forces of 
competition brought by foreign institutions would accelerate the 
development of modern financial techniques and methodologies by China's 
financial institutions.
    By providing the financial products and services that China's 
citizens and businesses need to save, invest, insure against risk, 
raise standards of living, and consume at higher levels, foreign 
financial institutions including U.S. providers would help China 
develop an economy that is less dependent on exports, more consumption-
driven and, therefore, an enormously important and expanding market for 
American products and services. In doing so, U.S. financial services 
firms can help China become a more stable and responsible stakeholder 
in the global economy and trading system.
    Chairman Levin and Ranking Member Herger, thank you again for the 
opportunity to contribute this submission. If you or the Subcommittee's 
staff have any questions, please feel free to contact the Forum's 
offices.

                                 
             Statement of Schottenstein Stores Corporation
Summary
    Schottenstein Stores Corporation, and its subsidiary, American 
Signature, Inc., urges the Committee to ensure that any legislation to 
apply U.S. countervailing duty laws to non-market economies address the 
potential for excessive double-counting of duties in cases where 
antidumping and countervailing duty actions are brought against a non-
market economy supplier.
Statement
    The Schottenstein Stores Corporation\1\, and its subsidiary, 
American Signature, Inc. welcome this opportunity to supplement our 
previous statement (see March 29, 2007 Statement of Schottnestein 
Stores Corporation, submitted to the House Ways & Means Committee in 
connection with the Subcommittee on Trade hearing on the Non-market 
Economy Trade Remedy Act of 2007) and provide additional comments on 
the proposed legislation designed to apply the countervailing duty 
(CVD) laws to imports from China, as embodied in H.R. 1229 and 
addressed at the hearing held by the Subcommittee on Trade on August 2, 
2007.
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    \1\ The member companies of this group are: American Eagle 
Outfitters (a publicly traded fashion retailer); Retail Ventures, Inc., 
the parent to retailers DSW, Filene's Basement and Value City 
Department Stores; American Signature, Inc.; and Retail Entertainment 
Design, (an in-store entertainment provider).
---------------------------------------------------------------------------
    American Signature, Inc. is one of the country's largest privately 
owned furniture retailers and the parent company to American Signature 
Furniture and Value City Furniture. We employ over 7,000 people around 
the United States, including approximately 1,200 associates in Ohio. We 
have four (and soon to be five) distribution facilities, and 
manufacture products at three U.S. facilities, in West Virginia, 
Georgia and North Carolina. As a major retailer, we pride ourselves on 
delivering globally-sourced, quality goods to consumers across the 
country. We rely on fundamental notions of free and fair trade to 
remain competitive. While we firmly believe the U.S. should hold China 
to its commitments, in our view, the current version of H.R. 1229 
threatens to harm many more U.S. jobs than it will save in some 
selected sectors.
    H.R. 1229 would allow the United States to impose duties to counter 
alleged subsidies from ``non-market economies'' (NMEs) such as China 
and Vietnam--in addition to anti-dumping duties that can already be 
imposed. While we understand the need to address inappropriate 
subsidies provided by trading partners, this legislation as written has 
the potential to impose excessive duties on many of the goods we 
import. Consequently, this issue is of utmost concern to any business 
that relies on a dependable supply chain of global suppliers in China 
and elsewhere.
    Specifically, the bill would allow for the imposition of U.S. 
countervailing duties (CVDs) against imports from countries, such as 
China, that are considered NMEs to counteract any alleged government 
subsidies these products may be benefiting from.
    Many trade law experts contend that U.S. domestic industries 
already have a tool at their disposal that addresses this issue. 
Specifically, the U.S. antidumping (AD) laws employ a methodology for 
NME countries that is designed to eliminate the benefit of any 
subsidies that otherwise would reduce an NME producer's cost of 
production when calculating AD duties. These experts suggest that, 
while it is not uncommon for litigants to file AD and CVD cases against 
imported products, in such cases involving market economy countries 
there is a statutory mechanism to ensure that subsidies and dumping 
effects are not double-counted; H.R. 1229, however, could open the door 
to the imposition of CVD duties to counteract the effect of certain 
subsidies that are already offset in the NME AD calculation, resulting 
in ``double-counting'' and imposition of duties that are grossly in 
excess of any subsidy and dumping effects that may be involved.
    American businesses that rely on global sourcing and trade with 
China employ millions of American workers. Passage of legislation such 
as H.R. 1229 in its current form has the potential to seriously alter 
our business model. The expected flood of CVD cases against China that 
this legislation would invite from litigants seeking double-duties 
would inject a significant level of uncertainty into our product supply 
chain that will undermine our ability to provide consumers here at home 
the most cost-effective product.
    The fear of these cases has already been realized: within the last 
two months four new companion sets of AD and CVD cases have been filed 
against China. This has largely been in response to the Commerce 
Department's recent decision asserting its authority to initiate CVD 
cases against NME countries like China, and its determination that 
various practices constitute countervailable subsidies. Clearly this is 
at least partially an attempt to take advantage of the double-counting 
and excessive imposition of duties.
    We further understand that if enacted as written, the legislation 
might violate World Trade Organization (WTO) rules. As part of China's 
accession to the WTO, all parties, including the U.S., agreed to use 
benchmark rates within China to calculate subsidies, with a possible 
exception for ``special difficulties'' and cases where it is not 
practical to use and/or adjust Chinese benchmarks. H.R. 1229 as written 
makes an explicit presumption that Chinese benchmarks cannot be used, 
contrary to the WTO requirement. If enacted, H.R. 1229 could lead China 
or others to bring a WTO case against the U.S. and potentially subject 
a broad range of U.S. exports to retaliatory tariffs.
    We believe that with appropriate modifications, H.R. 1229 could 
address improper subsidies, while not leading to excessive duties 
against goods imported by our company and many others in the U.S. Given 
the high stakes involved for our business, we urge the Committee to 
resolve the critical issues raised by this legislation and modify H.R. 
1229 to ensure that it is WTO consistent and addresses the potential 
for double-counting.

                                 
   Statement of Securities Industry and Financial Markets Association
    The Securities Industry and Financial Markets Association\1\ is 
pleased to submit this written testimony on China's capital markets and 
the benefits for U.S. financial services firms and both the U.S. and 
Chinese economies of opening China's financial markets. Our testimony 
will focus on the goals and objectives of the U.S. securities industry 
in our growing relationship with China's economy. As such, this 
testimony delves into some key issues related to China's capital 
markets. We welcome and appreciate the Committee's interest in this 
important issue. This testimony outlines progress made to date on 
expanding opportunities in China for non-Chinese financial services 
firms as well as areas for continued attention.
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    \1\ The Securities Industry and Financial Markets Association 
(``SIFMA'') brings together the shared interests of more than 650 
securities firms, banks and asset managers. SIFMA's mission is to 
promote policies and practices that work to expand and perfect markets, 
foster the development of new products and services and create 
efficiencies for member firms, while preserving and enhancing the 
public's trust and confidence in the markets and the industry. SIFMA 
works to represent its members' interests locally and globally. It has 
offices in New York, Washington D.C., and London and its associated 
firm, the Asia Securities Industry and Financial Markets Association, 
is based in Hong Kong.
---------------------------------------------------------------------------
    SIFMA has long supported more open, fair and transparent markets, 
and has strongly advocated liberalization in U.S. multilateral and 
bilateral trade in financial services. The economic benefits of 
financial services sector liberalization reverberate throughout the 
world in the form of higher growth and greater opportunities. Financial 
services liberalization leads to new entrants, innovative products and 
services, and capital markets with greater depth and efficiency.
    In the global economy, openness and fairness are essential to 
ensuring that markets operate efficiently so that capital can move 
seamlessly across borders and investors can easily and quickly buy and 
sell securities anywhere, while businesses can access capital at the 
lowest cost. The international financial system has been a major 
contributing factor in the marked increase in living standards of those 
countries that participate in it.
    China's WTO accession commitments for financial services, and more 
specifically for the securities industry, demonstrated a reluctance to 
open this sector fully to foreign competition. China's reluctance to 
open its securities markets fully to foreign investment has stymied the 
interest of foreign securities firms, and has slowed the pace of 
reforms in China's capital markets. Since China's accession to the WTO, 
nearly $24 billion has been committed to China's financial services 
sector, and according to SIFMA estimates less than $600 million of this 
total has found its way to China's securities firms. We believe China 
should improve and accelerate its financial sector reform so that it 
will have the financial tools necessary to sustain and improve the 
quality of its economic growth.
    We also wish to take this opportunity to commend the U.S. Treasury 
Department for its continuing work and active engagement in seeking 
open and fair markets for securities firms in China. Through the 
formation of the U.S.-China Strategic Economic Dialogue (``SED''), and 
the establishment of a Treasury Financial Attache in Beijing, Treasury 
has put in place the framework for continued and active advocacy on 
behalf of the U.S. financial services sector.
Expanding Business Opportunities for U.S. Financial Services Firms
    Many of SIFMA's leading member-firms have identified China as the 
largest single emerging market opportunity in the next few decades, 
with some measures indicating that China will be the world's largest 
economy within the next 40 years.\2\ To achieve this, China will need 
an enormous supply of capital and a market that can efficiently 
allocate savings. Analysts predict that over the next five years China 
will need to invest more than $1.5 trillion in improvements to physical 
infrastructure. Moreover, as China's economy continues to move from 
planned to market-based, decisions on capital allocation will become 
increasingly complex, and it will be ever more important to have 
efficient capital markets to ensure capital is allocated to where it is 
needed and will be used most efficiently.
---------------------------------------------------------------------------
    \2\ Goldman Sachs' Global Economics Weekly, Issue 03/34, 1st 
October 2003.
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    At the same time, China will accelerate its ambitious reform 
program even while its nascent pension system begins to address the 
needs of a huge and rapidly aging population. In 2005, 7.6 percent of 
China's population was over 65; by 2025 that number is projected to 
reach roughly 14 percent. The country's infrastructure, privatization, 
and social welfare demands will require an increasingly more efficient 
and sophisticated deployment of capital.
    To meet these demands, China will need to modernize its capital 
markets more rapidly. Currently, banks intermediate nearly three-
quarters of all capital in the Chinese economy. For China to meet its 
financing needs, increase the products and services available to 
investors, provide companies with new funding options, and enhance 
financial stability it will need to transition to a financial system 
less dependent on bank lending and more focused on capital markets 
financing. China's first modern stock market only opened in 1990. 
Between 1998 and 2000, market capitalization more than doubled from 
$231 billion to $581 billion; by the end of 2006, market capitalization 
rose to more than $917 billion. In less than two decades China's stock 
market stands as the largest in the emerging market world.\3\ However, 
the need for China to further develop its capital markets is 
illustrated when compared to other developing markets. A McKinsey & 
Company study found that in 2005, equity market capitalization, 
excluding non-tradable, state-owned shares, was 17 percent of GDP. This 
is the smallest market capitalization to GDP ratio in emerging Asia, 
where the ratio averages 70 percent.\4\
---------------------------------------------------------------------------
    \3\ However, according to McKinsey Global Institute, once these 
figures are adjusted for nontradable shares, China's stock market 
capitalization as a percent of GDP is among the world's smallest, about 
17 percent. Corporate debt issuance lags too, with issuance equal to 
about only 1 percent of GDP. ``How Financial System Reform Could 
Benefit China,'' 2006 Special Edition: Serving the New Chinese 
Consumer, The McKinsey Quarterly.
    \4\ Similarly, corporate bond issues by non-financial companies 
amounted to between 2 and 3 percent of GDP, compared with a typical 50 
percent in other emerging Asian markets.
---------------------------------------------------------------------------
    The government of the Peoples Republic of China (PRC) has 
acknowledged the need to reform the securities industry and has stated 
that it wants foreign investors and foreign firms to participate. 
China's domestic capital markets will benefit from the entry of U.S. 
securities firms and their technology, capital, innovation and best 
practices. As local firms prepare for this increased competition, they 
will adopt new technologies and improve the quality of products and 
services they offer. More competitive and efficient capital markets 
will also improve the allocation of capital to borrowers and users, 
facilitate the hedging and diversifying of risk, and assist the 
exchange of goods and services.
    Importantly, increased competition will create incentives and 
opportunities for niche players to enter the market and provide 
financial services on a regional basis, offer expertise in specific 
product areas, and produce new and innovative products that respond to 
consumer demands for risk management and retirement products, for 
example.
    As China's capital markets develop, Chinese firms will be able to 
raise more capital at lower costs to grow their businesses and create 
more products, services, and jobs. Since financial markets are 
inextricably linked to increased investment and economic growth, it is 
estimated that financial sector reforms could boost China's GDP 
annually by up to $321 billion.\5\ To put that number in perspective, 
as of 2005, only 20 countries have total GDP that exceeds $321 
billion.\6\
---------------------------------------------------------------------------
    \5\ Putting China's Capital to Work: The Value of Financial System 
Reform, May 2006, McKinsey & Company.
    \6\ World Bank, World Development Indicators database, World Bank, 
23 April 2007.
---------------------------------------------------------------------------
    China's private and public sectors alone cannot mobilize the 
massive financial resources, advice and expertise that are necessary to 
sustain its economic growth. Much of the infrastructure development 
will, by necessity, be funded through foreign sources, and this 
opportunity has generated substantial interest by the U.S. securities 
industry. Indeed, despite difficulties entering and operating in China, 
numerous U.S. securities firms have established offices in China and 
have participated in China's international securities offerings.
U.S.-China Strategic Economic Dialogue
    SIFMA is an enthusiastic supporter of the Strategic Economic 
Dialogue (SED) and we commend Treasury Secretary Paulson, Ambassador 
Holmer, their Treasury colleagues, and the Administration, for this 
important undertaking. Our view is that the SED has the potential to 
play a key role in advancing the U.S.-China economic relationship. The 
SED provides a forum where--with a single, unified voice--the 
Administration can underscore the importance to China of an open, fair 
and transparent market for financial services. Consequently, SIFMA has 
urged the Administration to engage in a results-oriented discussion 
that leads to the reduction and elimination of barriers that continue 
to obstruct global financial services firms in China. Eliminating 
burdensome barriers to entry will benefit the economies of both 
nations. While we detail our agenda for reform below, we believe there 
are a number of steps the Chinese should take in the short-term that 
will help it to reach its stated economic goals and reinforce the 
political sustainability of the SED.
    First, China should lift the de facto moratorium on foreign 
securities firm joint ventures that has been in place since December 
2005. Importantly, removal of the moratorium will bring China back into 
compliance with its WTO commitments. We are pleased that during the May 
22-23, 2007 SED meeting, China took a critical first step towards this 
goal by lifting the moratorium imposed on foreign investment in Chinese 
securities firms. It is important to note, however, that the moratorium 
is to be lifted sometime in the second half of 2007, rather than by a 
specific date.\7\
---------------------------------------------------------------------------
    \7\ More recently, we note that ``Mr Paulson said he had been told 
by Shang Fulin, the head of China Securities Regulatory Commission, 
that the moratorium on new brokerages joint ventures would be lifted in 
the northern autumn, a few months ahead of the initial schedule.''), 
U.S. presses China on liberalisation, by Richard McGregor in Beijing, 
Financial Times, August 1, 2007.
---------------------------------------------------------------------------
    Second, China should put in place a precise and transparent 
roadmap, on an agreed to timetable, that would result in providing 
foreign securities firms with the right to own 100 percent of a PRC 
financial services firm and the ability to engage in a full range of 
securities activities. No progress was made on this issue during the 
recent SED.\8\
---------------------------------------------------------------------------
    \8\ That being said, Tu Guangshao, vice chairman of the China 
Securities Regulatory Commission, was quoted by state media as saying 
China will raise the ceiling for foreign investment banks' stake 
holdings in domestic brokerages and joint ventures before the year-end. 
Reuters, Shanghai, Wednesday, May 30, 2007.
---------------------------------------------------------------------------
    To develop broader and deeper integration into the global financial 
market, China undertook in SED II to raise the quota for Qualified 
Foreign Institutional Investors from $10 billion to $30 billion. We 
note, however, a number of current QFII requirements that are onerous, 
and substantially limit the utility of the program, as well as the 
universe of investors that can take advantage of it.\9\ We urge China 
to continue the process of making its securities markets more 
attractive to investment through the rapid liberalization of current 
QFII restrictions on an agreed transition schedule. Such progressive 
liberalization, done in consultation with foreign and domestic capital 
markets participants, would almost certainly result in greater foreign 
investment in China's securities markets, add to the depth and breadth 
of trading in those markets and result in increased capital available 
to Chinese issuers.
---------------------------------------------------------------------------
    \9\ More specifically: 1) requirements that the principal amount in 
the QFII account remain in the account for at least one year (three 
years for closed-end funds) and that subsequent remittances must be 
approved by the State Administration of Foreign Exchange with principal 
withdrawal permitted only in stages; 2) requirement that investment 
quotas must be fully funded within a three-month period, and the unused 
portion of quota will expire; 3) requirement that a QFII commit at 
least $50 million in a special QFII account; and 4) individual and 
aggregate limitations on QFII ownership which, as the market changes, 
may limit interest in the program.
---------------------------------------------------------------------------
    We respectfully urge the U.S. Government to view the successful 
implementation of China's SED II financial services commitments as an 
integral part of SED III.
China's WTO Commitments For Foreign Securities Firms
    China's 2001 World Trade Organization (WTO) entry commitments in 
the securities and asset management sectors marked the country's first 
step toward liberalizing its capital markets. The commitments permit 
foreign firms to participate in the securities sector only through 
joint ventures (JVs) in which foreign ownership is capped at 33 
percent--although as more fully described below the scope of securities 
activities in which these joint ventures can participate is limited. 
China's WTO commitments also limit foreign participation in China's 
asset management sector to ownership of no more than 49 percent of 
domestic fund management firms.
    These WTO commitments make no provision for further increases in 
foreign ownership in either securities or asset management firms. 
Instead, the commitments suggest that without a change in policy, 
foreign investors will remain minority shareholders in local securities 
firms for the foreseeable future. Indeed, China remains as one of the 
few markets of interest to the securities industry where majority 
ownership is not permitted.
    China's WTO commitments in the securities sector also limit these 
minority owned JVs to underwriting the A shares of Chinese 
corporations, and to underwriting and trading government and corporate 
debt, B shares and H shares. The fundamental ability to trade in A 
shares was not conferred on these minority JVs. (A shares are Renminbi 
(RMB)-denominated shares limited to domestic investors, foreign 
financial firms with qualified foreign institutional investor (QFII) 
status, and foreign strategic investors. B shares are foreign-currency 
denominated shares listed on PRC exchanges and are open to both 
domestic and foreign investors. H shares are shares of PRC companies 
listed in Hong Kong.).
    Though foreign industry involvement can improve many aspects of the 
securities industry, we would urge China to move forward in two 
distinct, but reinforcing, areas to modernize and strengthen its 
capital markets. First, improvements in market access would improve the 
ability of foreign securities firms to compete in a fair manner with 
local firms. Second, steps in market reform would better regulate the 
industry and increase transparency.
    However, there remain significant market access barriers. SIFMA 
strongly urges China to make the following additional commitments, in 
the context of the ongoing WTO financial services discussions, in other 
trade forums, or government-to-government discussions:
1) Permit Full Ownership and the Right to Choose Corporate Form
    China should put in place a precise and transparent roadmap, on an 
agreed to timetable, that would result in providing foreign securities 
firms with the right to own 100 percent of a PRC financial services 
firm, including the ability to engage in a full range of securities 
activities, including underwriting, secondary trading of government and 
corporate debt and all classes of equity, hybrid mortgage products, 
derivatives trading, and asset management. We do note, however, that 
one of the results of the recent SED was that the Chinese will announce 
before the next SED meeting that foreign securities firms will be 
permitted to expand their operations in China to include brokerage, 
propriety trading and fund management.
    The right to enter a market and establish a wholly owned presence 
in a form of the firm's own choosing is relatively common in today's 
global markets. Currently, foreign investors can enter China's 
securities markets in two ways: by establishing a new JV with a Chinese 
partner or by taking a stake in an existing brokerage, the path that a 
number of foreign securities firms have chosen. Because in most cases 
the negotiations that result in a JV or a foreign stake are opaque, 
however, potential entrants have little available in the way of 
guidance on how to arrange such JVs. Similarly, foreign asset 
management firms should be permitted to manage money for Chinese 
investors, both retail and institutional, as well as to sell 
internationally diversified mutual funds to individuals through 
qualified local distributors.
2) Liberalization of Qualified Foreign Institutional Investors (QFII) 
        Standards
    China's decision to permit foreign investment in A shares through 
QFIIs beginning in 2003 was a landmark step in the development and 
liberalization of China's capital markets. More recently, PRC 
authorities have taken steps to increase the number of QFIIs and the 
amount invested by QFIIs.\10\ Nevertheless, a few QFII requirements are 
onerous and have substantially limited the utility of the program, as 
well as the number of investors that can take advantage of it.
---------------------------------------------------------------------------
    \10\ China will raise the quota for Qualified Foreign Institutional 
Investors from $10 billion to $30 billion, SED Financial Sector Reform 
Fact Sheet, May 23, 2007.
---------------------------------------------------------------------------
    Along with the QFII program, China has recently taken steps to 
allow certain large foreign investors to purchase shares in domestic 
companies. These new rules will allow foreign investors to buy stock in 
Chinese companies that have completed the share-reform program 
(exchange of nontradable shares to common A shares). Foreign investors 
that meet certain government standards can buy existing shares or 
purchase new shares that might be issued. But requirements that an 
investor purchase at least 10 percent of the company, and hold the 
stake for at least three years, could limit the desirability of the 
program.
    China would make its securities markets more attractive to 
investment through the liberalization of QFII restrictions. Such 
progressive liberalization, done in consultation with foreign and 
domestic capital markets participants, would almost certainly result in 
greater foreign investment in China's securities markets, deepen and 
broaden trading in those markets, and increase capital availability to 
Chinese issuers.
3) Implement a QDII program
    China is in the process of launching its long-awaited qualified 
domestic institutional investor (QDII) program to promote Chinese 
investment in foreign stocks and bonds. The People's Bank of China 
(PBOC) announced the launch of the program in April 2006, and the PBOC, 
the China Banking Regulatory Commission, and the State Administration 
of Foreign Exchange released interim measures that permit qualified 
commercial banks to pool RMB from domestic institutions and individuals 
and convert them into foreign exchange for investment overseas in 
fixed-income securities. Other implementation rules will eventually 
expand the program to qualified mainland insurance companies, fund 
management firms, and securities brokerages to convert RMB into foreign 
currency, raise funds in RMB or foreign currency, and invest in 
overseas securities. Such a program will further liberalize China's 
capital accounts. It may also help familiarize Chinese domestic 
investors with international corporate and brokerage practices and give 
them access to top-quality research under conditions that would respect 
officials' concerns about currency flows. China recently lifted 
restrictions prohibiting Chinese banks from buying foreign equities, 
and will allow banks to invest up to 50 percent of the QDII funds in 
overseas stocks. Previously, QDII banks were restricted to buying 
bonds, money-market products and fixed-income derivatives.\11\
---------------------------------------------------------------------------
    \11\ QDII's will still be prohibited from, ``. . . no investment in 
commodities-based derivative products, hedge funds and debt securities 
with credit ratings below BBB as assigned by an international credit 
rating agency.'' Notice of the Adjustments to the Offshore Investment 
Scope of Overseas Wealth Management Business of Commercial Banks on 
behalf of Their Clients (promulgated on May 10, 2007), http://
www.cbrc.gov.cn/english/home/jsp/
docView.jsp?docID=20070511425E7E3A4547640AFFE563AD79AEB000.
---------------------------------------------------------------------------
4) Promote Regulatory Transparency
    A transparent industry is generally one in which the public and 
industry participants have the opportunity to be involved in the 
rulemaking process, access information about proposed rules, question 
and understand the rationale behind draft rules, and have sufficient 
opportunity to review and comment on them. Transparent and fair 
regulatory systems play an integral role in the development of deep, 
liquid capital markets that attract participants, increase efficiency, 
and spur economic growth and job creation. The absence of transparency 
in the implementation of laws and regulations can seriously impede the 
ability of firms to compete fairly and often distorts the market. 
Though China's securities regulator, the China Securities Regulatory 
Commission (CSRC), has improved its policies on prior consultation and 
has presented many proposed regulations for public comment, much 
progress is still needed. Short comment periods are insufficient to 
review complex new regulations, particularly those intended to affect 
foreign firms whose ability to comment is hampered by distance and 
language.\12\
---------------------------------------------------------------------------
    \12\ For example, draft rules on credit rating business supervision 
in the securities market, and separate CSRC draft measures on corporate 
bond issuance, only provided a comment period of one week.
---------------------------------------------------------------------------
    SIFMA has published a paper that serves as a blueprint for a 
transparent regulatory regime. The paper underscores the key guiding 
principles of fair and transparent regulations as follows: 1) rules, 
regulations and licensing requirements should be considered and 
imposed, and regulatory actions should be taken, only for the purpose 
of achieving legitimate public policy objectives that are expressly 
identified; 2) regulation should be enforced in a fair and non-
discriminatory manner; 3) regulations should be clear and 
understandable; 4) all regulations should be publicly available at all 
times; and 5) regulators should issue and make available to the public 
final regulatory actions and the basis for those actions.
5) Liberalize Derivatives Regulation
    Interim derivative rules, which took effect in March 2004, have 
prohibited securities firms from creating and distributing derivative 
products. The inability of securities firms to engage in these 
activities hampers the development of these markets. Foreign firms hope 
that China's newly revised Securities Law will lead the State Council 
to formulate measures on the issuance and trading of derivatives.
    Continued liberalization of China's capital markets has clear 
benefits for China and the global economy. Long-established U.S. policy 
seeks to promote economic growth through open financial services 
markets. Global economic integration facilitates the importation of 
capital and intermediate goods that may not be available in a country's 
home market at comparable cost. Similarly, global markets improve the 
efficient allocation of resources. Countries gain better access to 
financing, and the suppliers of capital--institutional investors or 
individual savers--receive better returns on their investments.
    The most reliable and expedient way for China to meet its massive 
capital demand is to access the larger pools of capital available in 
the global markets. Foreign securities firms can contribute to the 
development of China's financial markets by sharing their expertise on 
the infrastructure needed to effectively serve a sophisticated and 
globally oriented client base. Foreign players can also provide new 
financial products and services that meet the changing needs of Chinese 
investors, demonstrate the benefits of high corporate governance 
standards, and consult on legal issues that must be addressed to help 
domestic equity and capital markets flourish. Ultimately, the 
modernization of China's financial system, especially its capital 
markets, will benefit both China and the world.
    Finally, open, fair markets help to increase living standards. We 
look forward to working with the Committee, the Congress, and the 
Administration to further expand the U.S. securities industry's access 
to China through the use of bilateral and multilateral trade forums. A 
coordinated U.S. Government effort, including all relevant agencies, 
will be critical in helping U.S. securities firms to gain full access 
to these crucial markets.
    We appreciate the Committee's interest in this issue, and the 
opportunity to present this statement. We look forward to working 
constructively with this Committee on issues related to the global 
financial markets in the future.

                                 
                                                         R-CALF USA
                                            Billings, Montana 59107
                                                    August 16, 2007

Hon. Charles B. Rangel, Chairman
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Rangel:

    The Ranchers-Cattlemen Action Legal Fund--United Stockgrowers of 
America
    (R-CALF USA) appreciates this opportunity to submit comments 
regarding trade legislation relating to China. R-CALF USA represents 
thousands of USA cattle producers on domestic and international trade 
and marketing issues. R-CALF USA, a national, non-profit organization, 
is dedicated to ensuring the continued profitability and viability of 
the U.S. cattle industry. R-CALF USA's membership consists primarily of 
cow-calf operators, cattle backgrounders, and feedlot owners. Its 
members are located in 47 states, and the organization has over 60 
local and state association affiliates, from both cattle and farm 
organizations. Various main street businesses are associate members of 
R-CALF USA.
    As the House Ways and Means Committee considers legislation related 
to trade with China, we urge you to include legislative proposals 
designed to ensure that U.S. trade remedy laws remain effective tools 
to combat unfair trade practices by China and other countries. As 
international trade has expanded with China and other countries, trade 
remedies have been critical for ranchers and farmers. China is becoming 
a more and more frequent source of dumped and subsidized imports that 
harm U.S. producers, including American agriculture producers. Since 
2004, China has accounted for 85 percent of the imports subject to new 
antidumping orders. Such unfair trade practices are a primary concern 
for the Nation's cattle ranchers, since the highly perishable nature of 
our product makes the cattle industry particularly vulnerable to unfair 
trade practices.
    It is critical that domestic trade remedy laws provide effective 
and meaningful relief from these injurious trade practices. 
Unfortunately, we are deeply concerned that the effectiveness of our 
trade laws is being undermined by a series of misguided decisions from 
the WTO settlement dispute system. Of particular concern are decisions 
by the WTO Appellate Body on the so-called ``zeroing'' issue. These 
decisions threaten to make effective relief from unfair trade practices 
much more difficult to obtain for farmers and ranchers throughout the 
United States.
I. Congressional Action Is Needed to Ensure WTO Decisions Do Not 
        Undermine the Effectiveness of U.S. Antidumping Law
    We believe Congress has an important role to play in upholding our 
trade laws in the face of problematic WTO decisions. The Administration 
has told our trading partners that over-reaching WTO decisions on 
``zeroing'' must be resolved through negotiations in the on-going Doha 
Round of negotiations at the WTO, and Congress can help make such a 
resolution a reality by ensuring that the WTO ``zeroing'' decisions are 
not implemented until such negotiations succeed. Specifically, we 
believe that enactment of the legislative language in H.R. 2714 will 
help defend U.S. trade laws and provide a needed incentive to reach a 
negotiated solution at the WTO. This will provide our Administration 
with the leverage it needs to reach a meaningful solution on the 
zeroing issue with our trading partners. Most importantly, 
Congressional action on this issue will ensure that U.S. ranchers and 
farmers are not unnecessarily stripped of the tools they need to 
counteract unfair trade practices from China and other nations while 
negotiations proceed.
A. U.S. Practices Challenged at the WTO Are Needed to Redress 100% of 
        the Dumping Occurring in our Market
    Since the creation of the Antidumping Act of 1921, U.S. trade 
policy has provided a remedy to U.S. producers harmed by international 
price discrimination that results in goods being exported to the U.S. 
at a price below the good's normal value. This basic right to address 
injurious dumping was included in GATT Article VI in the late 1940s and 
has been maintained ever since.
    Over many decades, the U.S. Government has employed calculation 
methods in antidumping proceedings that enable it to measure and 
redress the full extent of dumping occurring in the U.S. market. While 
this methodology has been given the misleading shorthand name 
``zeroing,'' the actual practice is not designed to unfairly ``zero 
out'' or lower dumping margins, but to fairly and accurately measure 
the full amount of dumping that is occurring. The Commerce Department 
looks at all relevant imports of a certain product and determines which 
imports were dumped and which were not dumped. All imports are included 
in Commerce's calculation of the margin of dumping for that product, 
but only those imports that are actually dumped face any liability for 
dumping duties.
    When calculating the dumping margin using the weighted average 
method, the Commerce Department divides the total amount of dumping 
found by the total value of the imports to determine an average dumping 
margin. When determining this margin, the Department does not provide 
credits, or offsets, for any imports of the product that may not have 
been dumped during the period. These are simply non-dumped entries, and 
there is no margin of dumping for these sales included in the numerator 
of the Department's calculations. This is because there is no liability 
for dumping duties for non-dumped sales. Thus, including credits for 
those sales in the dumping margin would artificially lower that margin 
and subject dumped products to a duty that fails to account for the 
full amount of dumping that has occurred. Administering the law in this 
way ensures that all dumping is accounted for, and that dumping is not 
masked by unrelated instances of non-dumping.
    This is no different than in other areas of the law, where such 
illogical offsets are not even contemplated. For instance, if you are 
caught exceeding the speed limit on the highway, you will receive a 
citation. You will be given no credit for other times when you (or 
other drivers) were complying with the law by driving below the speed 
limit. Likewise, if your car is found parked in front of an expired 
parking meter, that is a parking violation, regardless of whether other 
cars that are parked nearby still have time left on their meters and 
regardless of whether the same car on other days may have been parked 
(even at the same meter) with time left when it departed.
    Before the WTO Appellate Body decisions on ``zeroing,'' the concept 
of reducing the amount of dumping found by including credits for 
unrelated, non-dumped transactions was alien to the administration of 
the antidumping law. When the WTO was created, no country with active 
trade remedy laws would have understood the purpose of their law or the 
intent of the WTO agreements to be to require the inclusion of such 
counterintuitive offsets in dumping calculations. Such illogical 
offsetting, though, is precisely what the Department of Commerce has 
decided to implement in investigations in response to the WTO's 
misguided zeroing decisions. Inclusion of these offsets could seriously 
and systematically underreport on the amount of dumping occurring, 
leaving injured domestic industries, their workers and communities 
without the remedy intended by Congress for the last 86 years. Such 
offsets will be particularly harmful to the U.S. cattle industry, since 
accurate dumping margins that capture 100% of the dumping that occurs 
are vital to provide relief to producers of perishable and cyclical 
products that are particularly sensitive to dumping.
B. WTO Dispute Settlement Panels and the Appellate Body Have Made 
        Erroneous, Overreaching Decisions on ``Zeroing,'' Creating 
        Obligations to Which the U.S. Never Agreed
    From the beginning of the GATT, it was recognized that countries 
had the right to address injurious international price discrimination 
through the imposition of dumping duties. According to Article VI:1 of 
GATT 1994, injurious dumping is to be ``condemned.'' Article VI:2 of 
GATT 1994 further explains that the purpose of antidumping duties is to 
``offset or prevent dumping.'' The entire focus of Article VI of GATT 
1994 is to set out what member states can do to counteract dumping,\1\ 
and the Antidumping Agreement elaborates upon the provisions of Article 
VI. The United States was a major participant in the creation of the 
GATT and in the negotiation of the current Antidumping Agreement. At 
all times during these negotiations, the U.S. understanding of its 
rights has been the same--that it may collect antidumping duties on 
100% of the dumping that it finds. No duties are collected on imports 
that are not dumped. But the fact that there are some imports that are 
not dumped has never justified reducing the amount of dumping found and 
thus reducing the liability for dumping duties on those imports that 
are dumped.
---------------------------------------------------------------------------
    \1\ U.S.--1916 Act (EC) (Panel), Panel Report, at paras. 6.103, 
6.106-107, 6.114.
---------------------------------------------------------------------------
    Yet, in a series of decisions, beginning with EC--Bed Linen, and 
continuing through U.S.Softwood Lumber V, U.S.--Zeroing (EC), and 
U.S.--Zeroing (Japan), WTO Appellate Body decisions have, for various 
and changing reasons, found that imports that are not dumped actually 
constitute a basis for reducing the amount of dumping found. These 
decisions have ruled that Commerce's methodology for capturing 100% of 
dumping violates WTO rules and is prohibited. The reality, though, is 
that the U.S. never agreed to any prohibition of ``zeroing'' during the 
Uruguay Round. The Appellate Body simply created the prohibition out of 
whole cloth. Indeed, the U.S. Uruguay Round antidumping negotiators 
have publicly stated that they never agreed to a ``zeroing'' ban:
    Despite the successful effort to prevent any provision in the 
Antidumping Agreement that would prohibit ``zeroing,'' the WTO AB 
concluded that the Antidumping Agreement does prohibit ``zeroing.'' 
This interpretation of the Agreement creates an obligation to which the 
U.S. did not agree, and, even more disturbing, it imposes upon the U.S. 
an obligation that the U.S. affirmatively opposed and successfully 
prevented from being incorporated into the WTO Antidumping 
Agreement.\2\
---------------------------------------------------------------------------
    \2\ Letter from Eric I. Garfinkel, Former Assistant Secretary of 
Commerce for Import Administration (1989-1991), and Alan M. Dunn, 
Former Assistant Secretary of Commerce for Import Administration (1991-
1993), to the Secretary of Commerce and the U.S. Trade Representative 
(Jun. 20, 2005).
---------------------------------------------------------------------------
    Not surprisingly, therefore, the Administration has been 
consistently critical of the reasoning, or lack thereof, in the 
``zeroing'' decisions:

      ``The United States had grave concerns about whether the 
Appellate Body had properly applied the special standard of review 
under Article 17.6(ii) of the Anti-Dumping Agreement.'' Dispute 
Settlement Body, Minutes of the Meeting (May 12, 2001), WT/DSB/M/101 
(May 8, 2001).
      ``There was a widespread view among the GATT Contracting 
Parties--including Canada--that such offsetting had not been required 
in the years and decades before the WTO Agreement, and they had 
continued in this view as WTO Members after 1995.'' Statement of the 
United States at the adoption of the Panel and Appellate Body Reports 
in Softwood Lumber (WT/DS264) (Aug. 31, 2004).
      ``[T]he United States remains of the view that the 
Appellate Body report in [the U.S.Zeroing (EC)] dispute is a deeply 
flawed document.'' Statement of the United States on implementation of 
the Panel and Appellate Body Reports in Zeroing (EC) (WT/DS294) (May 
30, 2006).
      ``[T]he sum total of the Appellate Body's findings on the 
zeroing issue over the past several years calls into question whether 
the major users of the antidumping remedy began breaching that 
Agreement the very day it went into effect in 1995. This is a 
surprising result. Presumably the Members who negotiated the Agreement 
understood its meaning.'' Statement of the United States at the 
adoption of the Panel and Appellate Body Reports in Zeroing (Japan) 
(WT/DS322) (Jan. 23, 2007).

    Congress has also identified the problem of WTO Appellate Body 
decisions creating obligations not agreed to by the United States as a 
serious concern, in particular on the issue of ``zeroing.'' In the 
Trade Act of 2002, Congress recognized that ``[s]upport for continued 
trade expansion requires that dispute settlement procedures under 
international trade agreements not add to or diminish the rights and 
obligations provided in such agreements,'' noting that, ``the recent 
pattern of decisions by dispute settlement panels of the WTO and the 
Appellate Body to impose obligations and restrictions on the use of 
antidumping, countervailing, and safeguard measures by WTO members--has 
raised concerns.'' \3\ Congress expressed concern that WTO dispute 
settlement panels and the Appellate Body ``apply the standard of review 
contained in Article 17.6 of the Antidumping Agreement,--[and] provide 
deference to a permissible interpretation by a WTO member--.'' \4\ The 
accompanying Senate report stated that the concerns expressed in the 
legislation were prompted by ``recent decisions placing new obligations 
on the United States--which are not found anywhere in the negotiated 
texts of the relevant WTO agreements.'' \5\ That report specifically 
refers to the decision in EC--Bed Linen, wherein the ``zeroing'' issue 
was first addressed.\6\
---------------------------------------------------------------------------
    \3\ 19 U.S.C. Sec. 3801(b)(3).
    \4\ 19 U.S.C. Sec. 3801(b)(3).
    \5\ S. Rep. No. 107-139, at 6 (2002).
    \6\ Id. at 7, n.1
---------------------------------------------------------------------------
    More recently, Members and Senators have written letters to the 
Administration about the continuing problem of WTO overreaching in the 
``zeroing'' cases. In November 2006, Representatives Cardin and Levin 
wrote to Ambassador Schwab about their ``continuing serious concern 
with regard to decisions of the World Trade Organization Appellate Body 
(AB) addressing the issue of `zeroing' in antidumping proceedings.'' 
\7\ Likewise, in December 2006, eleven Senators wrote to Secretary 
Gutierrez and Ambassador Schwab to express: concern about the 
continuing pattern of World Trade Organization (WTO) Appellate Body 
decisions addressing the issue of ``zeroing'' in antidumping 
proceedings. Without question, the Appellate Body is creating 
obligations not included in the WTO agreements and never accepted by 
the United States. We are deeply troubled that U.S. trade remedy laws 
are being undermined by WTO overreaching on the ``zeroing'' issue.\8\
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    \7\ Letter to Ambassador Susan C. Schwab from Representatives 
Benjamin L. Cardin and Sander M. Levin (November 27, 2006).
    \8\ Letter to Secretary Carlos M. Gutierrez and Ambassador Susan C. 
Schwab from Senators Rockefeller, Baucus, Craig, Durbin, Crapo, Byrd, 
Voinovich, Conrad, Graham, Bayh, and Dole (December 11, 2006).
---------------------------------------------------------------------------
    Chairman Rangel and Chairman Baucus of the Senate Finance Committee 
also wrote to Secretary Gutierrez and Ambassador Schwab seeking delay 
of the implementation of the decisions because of their own ``concern[] 
that the Appellate Body decision at issue involves an attempt to impose 
unilaterally obligations on a WTO Member--in this case, the United 
States--without its prior consent.'' \9\
---------------------------------------------------------------------------
    \9\ Letter to Secretary Carlos M. Gutierrez and Ambassador Susan C. 
Schwab from Chairman Charles B. Rangel (Committee on Ways and Means) 
and Chairman Max Baucus (Committee on Finance) (January 19, 2007).
---------------------------------------------------------------------------
    Outside observers and academics have also questioned the validity 
of the ``zeroing'' decisions.\10\ Despite such strong, ongoing, and 
growing concern from the Administration, Congress, and outside 
observers, the Commerce Department has already implemented WTO 
``zeroing'' decisions for antidumping investigations, and will in the 
future face a deadline for implementing the decisions in antidumping 
reviews.
---------------------------------------------------------------------------
    \10\ See, e.g., Greenwald, John, WTO Dispute Settlement: An 
Exercise in Trade Law Legislation?, 6(1) J. Int'l Econ. Law 113, 120 
(2003); Alford, Roger P., Reflections on U.S.-Zeroing: A Study in 
Judicial Overreaching by the WTO Appellate Body, 45 Colum. J. 
Transnat'l Law (2006).
---------------------------------------------------------------------------
C. Congressional Action Will Help the U.S. Negotiate a Solution on 
        ``Zeroing'' in the WTO Doha Round Negotiations
    The WTO Appellate Body decisions regarding zeroing have been 
harshly criticized by the U.S. Government as exceeding the authority of 
the Appellate Body by creating obligations never agreed to by the 
members. These decisions have failed to properly interpret the WTO 
Antidumping Agreement and the GATT, they have failed to accord 
appropriate deference to the United States' understanding of its rights 
and obligations, and they have created obligations to which the U.S. 
never agreed, in violation of express provisions of the Dispute 
Settlement Understanding (DSU).\11\ In such an extraordinary situation, 
the only way for the U.S. to protect its interests and improve the 
functioning of the WTO is to pursue clarification of its rights and 
obligations through negotiations.
---------------------------------------------------------------------------
    \11\ See DSU Articles 3.2 and 19.2; see also Antidumping Agreement 
Article 17.6(ii). In fact, numerous WTO Members have identified 
instances of overreaching by WTO dispute settlement panels and the 
Appellate Body in a variety of cases, suggesting the existence of a 
systemic problem. See Stewart, T., Dwyer, A., and Hein, E., Proposals 
for DSU Reform that Address Reform Directly or Indirectly, the 
Limitations on Panels and the Appellate Body Not to Create Rights and 
Obligations, 535-541, in Reform and Development of the WTO Dispute 
Settlement System (Georgiev and Van der Borght, eds.), Cameron May 
(2006); Stewart, T., Dwyer A., and Hein, E., Trends in the Last Decade 
of Trade Remedy Decisions: Problems and Opportunities for the WTO 
Dispute Settlement System, 22-23, 28-29, presented to the ABA Section 
of International Law: The World Trade Organization at 10 and the Road 
to Hong Kong (2005) (pending publication in the Arizona Journal of 
International and Comparative Law, Spring 2007).
---------------------------------------------------------------------------
    Given the widespread concern over the implications of the WTO 
``zeroing'' decisions, the Administration has requested that our 
trading partners engage in negotiations to address these misguided 
decisions. In its request, the U.S. explained why negotiations are 
needed:
    A prohibition of zeroing, or a requirement to provide offsets for 
non-dumped transactions, simply cannot be found in the text of the AD 
Agreement. Nevertheless, the Appellate Body concluded that authorities 
are required to offset non-dumped comparisons against dumped 
comparisons, even though this conclusion is at odds with long-standing 
practices implementing AD Agreement provisions relating to, among other 
things, targeted dumping and prospective normal value systems, as well 
as with long-held views on the very concept of dumping itself. The 
issue of zeroing, on which Members could not reach agreement in the 
Uruguay Round, should not be left to dispute settlement. We as Members 
should endeavor to reach an agreement on this issue through 
negotiation.\12\
---------------------------------------------------------------------------
    \12\ United States--Offsets for Non-Dumped Comparisons, 
Communication to the Negotiating Group on Rules, TN/RL/W/208 (June 5, 
2007).
---------------------------------------------------------------------------
    On June 27, 2007, the U.S. submitted a textual proposal to Rules 
Negotiating Group that would clarify that offsets are not required in 
dumping proceedings.\13\
---------------------------------------------------------------------------
    \13\ United States, Proposal on Offsets for Non-Dumped Comparisons, 
Proposal to the Negotiating Group on Rules, TN/RL/GEN/147 (June 27, 
2007).
---------------------------------------------------------------------------
    Nothing in the WTO Agreement requires the U.S. Government to 
implement an adverse decision by automatically repealing our laws or 
changing our practices instead of negotiating a solution.\14\ The U.S. 
is a strong supporter of the WTO and its dispute settlement system. In 
response to numerous adverse WTO decisions, the U.S. already has a 
remarkable record of bringing inconsistent measures into conformity 
with the covered agreements in most of those disputes. However, the 
U.S. expects WTO dispute settlement panels and the Appellate Body to 
comply with express limitations on their authority according to the WTO 
DSU. DSU Articles 3.2 and 19.2 explicitly prohibit dispute settlement 
findings or recommendations that ``add to or diminish the rights and 
obligations provided in the covered agreements.'' The series of 
decisions on ``zeroing'' represents another instance of panels and the 
Appellate Body imposing obligations that were not negotiated or agreed 
to by the U.S. When a panel or the Appellate Body does not honor the 
limitation on their authority, there is no remedy for a Member. Absent 
negotiations, except for in the most extraordinary cases, the WTO 
dispute settlement system cannot effectively limit erroneous decisions.
---------------------------------------------------------------------------
    \14\ Under DSU Article 22.8, concessions or other obligations shall 
only be suspended until: 1) the inconsistent measure is removed; 2) a 
solution to the nullification or impairment of benefits is provided; or 
3) a mutually satisfactory solution is reached between parties.
---------------------------------------------------------------------------
    The Administration has taken the essential first step of requesting 
WTO negotiations to correct the over-reaching ``zeroing'' decisions and 
proposing text that would clarify that WTO members are not required to 
include offsets for non-dumped sales in their dumping calculations. But 
the United States faces pressure from trading partners that seek to 
have the misguided ``zeroing'' decisions implemented in full by the 
United States and/or that have put forward their own proposals in the 
rules negotiations to weaken the effectiveness of domestic trade 
remedies. Thus, congressional support for a negotiated solution can 
play a key role in increasing U.S. negotiating leverage and creating an 
incentive for partners to come to the table in good faith to address 
overreaching by the WTO dispute settlement system.
    Legislation has been introduced (H.R. 2714) that would mandate 
resolution of the ``zeroing'' issue through negotiations and ensure 
that resolution through negotiations is the approach that is pursued. 
Because the decisions in these cases have so clearly created 
obligations never agreed to by prior negotiators, it is vital that our 
laws not be modified pursuant to these decisions in ways that prevent 
the United States from providing its domestic producers with a remedy 
that addresses all instances of dumping. H.R. 2714 would also ensure 
that outcome. Passage of this legislation will ensure that U.S. 
producers, farmers and ranchers included, are protected from negative 
impacts arising from these erroneous WTO decisions while an agreement 
to address these decisions is reached in Geneva.
II. Legislation on China Trade Should Ensure Effective Relief Is 
        Available to Industries Harmed by Unfair Trade
    As the House Ways and Means Committee considers legislation related 
to trade with China, there are additional measures that would help 
ensure that U.S. trade laws provide effective relief to industries 
harmed by unfair trade by China and other countries.
    First, Congress should take action to address a decision by the 
U.S. Court of Appeals for the Federal Circuit that will significantly 
weaken U.S. trade remedy laws. The Court imposed a new test that must 
be met before an industry can receive relief from unfair trade. The 
decision requires the International Trade Commission not only find that 
unfairly traded imports are a cause of injury to the domestic industry, 
but also to engage in a speculative, hypothetical inquiry to determine 
whether or not imports from non-subject countries would cancel out the 
benefits of import relief if any relief is granted. This test has no 
basis in the law, and it is a dramatic departure from current practice. 
The test will make injury investigations much more costly, and it will 
greatly diminish the likelihood of relief to America's farmers and 
ranchers that have been harmed by unfair trading practices. The 
decision also has implications far beyond agriculture. Congress has the 
opportunity to correct this erroneous decision and re-affirm the intent 
of our trade remedy laws by enacting language in H.R. 2714 that would 
restore the law to its original meaning.
    Second, Congress should ensure that the full range of trade remedy 
tools is available to combat unfair trade practices by China. While the 
Commerce Department has recently found that countervailing duty law can 
be applied to imports from China, Congress should codify this 
understanding in the law to ensure that massive government subsidies in 
China, which seriously distort trade and harm U.S. producers who 
receive no such subsidies, can be effectively redressed through U.S. 
trade laws. This will help level the playing field with China, provide 
important relief to U.S. producers harmed by unfair Chinese subsidies, 
and create certainty and predictability in the law for our producers. 
In addition, trade remedy laws should be clarified to ensure that there 
is an effective remedy against currency manipulation by China and to 
ensure that the China-specific safeguard in section 421 provides a 
meaningful tool to U.S. producers facing surges in imports from China.
III. Conclusion
    We greatly appreciate the Committee's interest in legislation with 
regard to trade with China. While increased trade with China has 
provided many benefits, it has also revealed how vital our domestic 
trade remedy laws are as the first line of defense against unfair 
foreign trade practices. U.S. cattle producers understand how important 
effective trade remedy laws are, and they depend on those laws to 
ensure that the playing field is level when we compete internationally. 
Unfortunately, troubling developments at the WTO threaten to undermine 
the effectiveness of U.S. trade remedy laws with regard to China and 
other countries. We believe Congress can play an important role in 
ensuring that these erroneous decisions are corrected through 
negotiations, thereby guaranteeing that U.S. farmers and ranchers 
continue to have access to the tools they need to combat unfair trade.
    We therefore strongly urge you to include the provisions of H.R. 
2714 in any legislation the Committee on Ways and Means considers 
regarding trade with China. Other proposals to guarantee the 
effectiveness of our trade remedy laws with regard to China also merit 
inclusion, including provisions in H.R. 2714 to correct a troubling 
court decision on injury to the domestic industry, proposals to clarify 
that countervailing duty law applies to goods from China, and proposals 
that would ensure that currency manipulation and import surges from 
China can be effectively addressed through domestic trade remedy laws.
    Our farmers and ranchers can compete with China and any other 
country in the world as long as the playing field is level and fair. 
That can only be assured by maintaining the integrity of our trade 
remedy laws. We believe that legislation regarding trade with China 
provides an important opportunity for the Committee to defend and 
strengthen our trade remedy laws and thus improve the competitiveness 
of U.S. cattle producers.
    R-CALF U.S. appreciates this opportunity to submit our views.

            Sincerely,

                                  R. M. Thornsberry, D.V.M.
                  President, R-CALF U.S. Board of Directors

                                 
              Statement of the U.S.-China Business Council
    The challenge facing America today is to consolidate and extend the 
substantial benefits of global trade to all Americans and to strengthen 
the Nation's ability to benefit from the exponential growth in commerce 
that will occur in the coming decades.
    There are several broad issues currently being considered by 
Congress, including currency, trade remedies, and import safety, that 
affect U.S. trade and commerce across the globe. As the Ways and Means 
Committee considers proposals to address these issues in the context of 
the U.S. trading relationship with China, the U.S.-China Business 
Council (USCBC) encourages the members to ensure that the considerable 
gains to U.S. consumers and workers that result from trade globally and 
trade with China specifically are not undercut in an effort to remedy 
specific issues.
    U.S. trade and investment with China clearly benefit the U.S. 
economy, both through exports and through broader effects such as lower 
prices and higher productivity. Since China joined the World Trade 
Organization (WTO) in 2001, U.S. exports to China have grown 187 
percent, far more rapidly than U.S. exports to any major market during 
this time. China is now our fourth-largest export market--third, if 
exports to Hong Kong are included. The prospects for increased exports 
of services to China are also encouraging. As U.S. companies take 
advantage of service sector openings mandated by China's WTO agreement, 
the U.S. services trade surplus is projected to grow to $15 billion by 
2015 according to Oxford Economics.\1\
---------------------------------------------------------------------------
    \1\ Oxford Economics. The Prospects for U.S.09China Services Trade 
and Investment. The China Business Forum, December 2006. See: 
www.chinabusinessforum.org/pdf/uscbc-full-report-prospects-for-us-
china-services-trade-and-investment-chinese.pdf.
---------------------------------------------------------------------------
    These trends need to be encouraged as steps are taken to deal with 
legitimate and serious U.S. concerns regarding the bilateral commercial 
relationship, such as intellectual property rights protection, market 
access barriers, unfair trading practices, or product safety in China. 
USBC supports balanced and fact-based efforts to find solutions that 
are focused and do not threaten the tremendous gains to the U.S. 
economy that come from trade and investment with China. Legislation 
that undermines the United States' own credibility through inconsistent 
and illegitimate enforcement is both ineffective and counterproductive. 
Therefore, USCBC strongly recommends that the Committee ensures that 
all measures adopted by Congress are balanced and WTO consistent. A 
failure to abide by WTO commitments would undermine U.S. commercial 
relations with all of its trading partners, thereby costing American 
firms and citizens access to the enormously beneficial global market.

    A fuller discussion of three key issues follows.
Currency Validation
    One of the most contentious issues currently in U.S.-China trade 
relations is the exchange rate between the U.S. dollar and the Chinese 
yuan. The USCBC shares Congress's goal that China adopt a market-driven 
exchange rate as the ultimate and appropriate solution to this issue.
    Toward this end, our focus should be on encouraging China to 
undertake the broader financial sector reforms that will enable China 
to remove capital controls at the appropriate time and allow market 
forces to determine fully the value of its currency. These reforms 
include opening the financial sector to more private companies, 
introducing more financial market products such as currency futures, 
requiring greater commercial accountability from existing financial 
sector companies, and, of course, allowing more foreign participation 
in China's capital and credit markets. The Strategic Economic Dialogue 
led by the Treasury Department has made these reforms a central part of 
its engagement with China's government and we fully support this 
approach.
    In the meantime, China should move more quickly to allow market 
influences from trade flows to be reflected in the exchange rate 
between the dollar and the yuan. The yuan has strengthened by about 9 
percent since a new currency policy was introduced in July 2005. Many 
economists here and in China expect gradual appreciation to continue 
for the balance of this year, with perhaps a cumulative appreciation of 
11-12 percent by that time.
    Many observers say that China's government keeps the value of its 
currency artificially low in order to boost its exports and that this 
is the main cause of the bilateral trade deficit between China and the 
United States. The effect of China's exchange rate policy on bilateral 
trade is likely overstated, however. USCBC member companies generally 
do not cite the exchange rate as a key business issue affecting their 
export competitiveness in China, for example. Many are concerned, 
though, about potential repercussions should the political dispute 
between the two countries over the exchange rate worsen.\2\
---------------------------------------------------------------------------
    \2\ USCBC. U.S. Companies Gain in China, Still Face Hurdles. http:/
/www.uschina.org/public/documents/2006/08/member-priorities-survey.pdf.
---------------------------------------------------------------------------
    More broadly, recent research indicates that even a 25 percent 
revaluation of the yuan against the dollar--far greater than could be 
expected--would decrease the total U.S. trade deficit by only $20 
billion\3\ after two years. This limited impact is primarily because 
most of the goods we import from China we previously imported from 
other low-cost suppliers in Asia and throughout the world. These other 
economies have been investing heavily in China over the past decade, 
shifting their U.S.directed export manufacturing--and with it their 
longstanding trade surpluses with the United States--over to China (see 
the chart below). If we stopped buying these products from China, we 
would simply go back to buying these products from other countries--and 
pay more for them, potentially increasing our trade deficit.
---------------------------------------------------------------------------
    \3\ Oxford Economics: The China Effect: Assessing the Impact on the 
U.S. Economy of Trade and Investment with China. The China Business 
Forum, 2006. p.8.
---------------------------------------------------------------------------
Composition of the U.S. Global Trade Deficit
[GRAPHIC] [TIFF OMITTED] 49994A.040

    Even so, any benefit China gains from an undervalued currency--even 
if its actual impact on the U.S. economy is not great--should be 
addressed. The best way to eliminate any such unfair advantage is to 
continue to push for greater market influences to be reflected in the 
exchange rate now, and for broader financial reforms that will lead to 
the removal of capital controls at the appropriate time and a truly 
market based currency in the future.
    Legislative approaches to the exchange rate issue may do more harm 
than good. Proposals that attempt to determine the ``true value'' of an 
exchange rate, or the amount by which a currency is believed to be 
misaligned, should be rejected. There is no broad international or even 
domestic agreement on how to determine the proper value of an exchange 
rate. Such estimates are subjective, vary greatly with the methodology, 
and can be politicized. In the case of China, for instance, estimates 
of misalignment range anywhere from 1 percent to 40 percent, depending 
on which economist you ask or whether you refer to the statistics of 
the International Monetary Fund, national governments, or other 
international organizations. As a consequence, directing the Treasury 
or Commerce departments to calculate how much a specific currency may 
be over or undervalued will require the department to make a 
politically charged guess, rather than an exact calculation.
    The Committee also should not endorse efforts to define currency 
undervaluation as a countervailable subsidy. Under WTO rules, currency 
manipulation or misalignment would likely not meet the standard for 
action. Thus, applying countervailing duties (CVDs) to China on that 
basis would open the United States to a WTO challenge on the matter--a 
case which the United States would likely lose. Moreover, 
reinterpretation and inconsistent imposition of WTO laws undermine the 
calls by the United States for China to abide by international norms--
and invites retaliatory sanctions from China.
    The use of exchange rates to modify antidumping calculations on 
imports also may not be consistent with U.S. WTO commitments. The WTO 
antidumping agreement defines precisely how currency adjustments are to 
be made in antidumping proceedings and it does not authorize the 
additional adjustment proposed by some measures that have been 
introduced in Congress. Given the degree to which U.S. exports are 
increasingly subject to antidumping actions abroad, it would be 
counterproductive for the United States to adopt unfair and 
questionable procedures that undermine U.S. credibility as we work to 
improve other countries' compliance with WTO rules.
    Continued firm engagement with China to move faster with financial 
reforms, and in the meantime allow the exchange rate to better reflect 
trade flows, remains the best approach to reaching our common goal of a 
market-driven exchange rate. We should work with other governments and 
the International Monetary Fund in a coordinated dialogue with China to 
achieve this end.
Countervailing Duties and Nonmarket Economies
    USCBC believes that applying countervailing duties to exports from 
nonmarket economies is unnecessary. U.S. law already includes 
antidumping remedies that capture unfair trade advantages that might be 
enjoyed by producers in China and other nonmarket economies. At the 
same time, using CVDs against imports from nonmarket economies may act 
against U.S. economic interests. We want China to continue to reform 
its economy and graduate to market economy status once it has clearly 
met criteria under U.S. law. By applying CVDs to China now, before it 
has achieved market economy status, we are eliminating important 
incentives for China to move toward this goal by sending mixed signals 
about our intentions. We should instead be plotting out a clear roadmap 
of specific reforms that, if adopted, would result in China achieving 
market economy status under U.S. law. It is also important to note that 
a fully convertible currency--and by assumption, a market-determined 
exchange rate--is one of the criteria for graduation.
    Congress is nonetheless considering legislation that would apply 
CVDs to nonmarket economies. If it chooses to go this route, there are 
several specific flaws in the approach reflected in H.R. 1229 that 
deserve highlighting. First, the bill creates the potential for 
inappropriate and WTO-inconsistent double remedies to be imposed for 
the same subsidies. When applying the countervailing duty law to 
products of nonmarket economy countries that are also subject to an 
antidumping investigation, subsidies may be double-counted under the 
two simultaneous proceedings. While the Department of Commerce (DOC) 
already has explicit authority not to double-count export subsidies, it 
does not have that authority with respect to domestic subsidies that 
might be targeted. Legislation that does not address this issue should 
be rejected.
    Second, H.R. 1229 requires DOC to employ methodologies to calculate 
the levels of subsidization that are inconsistent with our WTO 
commitments. As part of China's accession to the WTO, all parties, 
including the United States, agreed that benchmark rates within China 
would be used to calculate subsidies, unless ``special difficulties'' 
arise and it is not practical to use and/or adjust Chinese benchmarks. 
Contrary to the explicit WTO requirement creating a presumption for the 
use of Chinese benchmarks, H.R. 1229 makes an explicit presumption that 
such benchmarks cannot be used. Determinations as to subsidy benchmarks 
must be consistent with U.S. WTO obligations and should be left to DOC, 
which has the data to make the objective and accurate analyses 
required. Moreover, the language of the provision inappropriately 
provides that, even if China is determined to be a market economy, DOC 
must still apply special procedures in determining subsidy benchmarks. 
There is no basis for singling out certain market economies for such 
discriminatory treatment.
    Finally, H.R. 1229 requires congressional approval of any decision 
by DOC to grant market-economy status to a nonmarket economy country 
under antidumping rules. The requirement of a congressional approval 
undermines the objective, factual, and case-by-case analysis of the 
economic criteria set forth in the antidumping law that the graduation 
determination process demands. Requiring Congress to vote on this type 
of determination would send the wrong signal to China and our other 
trading partners, as they might seek to replicate such congressional 
interventions in their own trade remedy analyses; this would have 
adverse effects on U.S. exporters.
Import Safety
    In recent months, the safety of goods made in China has become a 
high-profile issue for U.S. consumers and companies. Product safety and 
quality are serious matters that must be addressed quickly and 
transparently. The objective should be clear: to ensure the soundness 
of our product supply chain and maintain consumers' confidence that the 
products they buy are safe to use and meet U.S. quality standards, 
regardless of the source. It is vitally important to pursue a fact-
based approach to the issues to ensure accurate understanding of the 
problems and address them with the appropriate solutions.
    Though no product safety violation is acceptable, U.S. companies 
and consumers should bear in mind that most imports from China are 
safe, and the product safety issue should not be used as a reason to 
adopt blanket bans of all products made in China. In addition, both 
sides must take actions to address this issue effectively. The United 
States needs to work with China--and indeed, with all other economies 
whose suppliers produce goods for global markets--to ensure that the 
proper standards and procedures are in place and are being enforced. 
Actions must also be taken in the United States to ensure the same 
goal.
    Although the issue has many facets and will require various 
approaches and solutions, one longstanding problem highlighted by 
recent episodes is the need for stronger criminal penalties in China to 
deter counterfeiting. USCBC has been recommending such penalties to the 
PRC government for some time. Stronger criminal penalties are also a 
core part of the intellectual property rights cases that the U.S. Trade 
Representative is pursuing with China under the WTO.
    At the same time, it is important to note that under U.S. law, U.S. 
importers have the legal obligation to ensure that the products they 
import from anywhere in the world meet U.S. quality and safety 
standards. The majority of U.S. companies have a good track record of 
doing so, but some need to step up their efforts. Most larger U.S. 
companies with better-known brands have existing, effective, vigorous 
supplier compliance programs that they use in China and elsewhere.
    It should also be noted that many U.S. companies that invest in 
China bring their global product quality and safety standards to their 
China facilities. These companies serve as models for improving product 
quality and safety in China, just as they do on other important issues 
such as workplace safety. Product quality issues tend to surface in 
Chinese enterprises and occasionally in enterprises of other foreign 
investors that have yet to develop a good track record of complying 
with product standards.
    Finally, we should keep in mind that the United States has far more 
allies in China on this issue than opponents. Chinese consumers share 
the same concerns as U.S. consumers. The PRC central government is 
concerned about the reputation risk for the ``made in China'' label. 
And producers of legitimate goods in China are concerned about being 
tainted by the actions of the far fewer bad actors.
    We should therefore seek to work with the Chinese government to 
achieve our common interests and avoid allowing this issue to devolve 
into a trade dispute--an outcome that would not get us closer to the 
goal of maintaining consumer confidence. USCBC has proposed that this 
issue be addressed bilaterally under the umbrella of the Strategic 
Economic Dialogue, particularly given the number of agencies in both 
countries that are involved in assuring product quality and safety and 
the need to coordinate a comprehensive set of actions by both sides.
    Thank you for the opportunity to present the USCBC's views on these 
important issues.

                                 
                      Statement of Virgil H. Goode
    Mr. Chairman, thank you for the opportunity to provide the 
Committee with my comments on trade with China. I have been a 
consistent critic of our current trade policies as they relate to 
China, and I am pleased that this Committee wishes to address these 
problems. China must not be allowed to circumvent international trade 
agreements and U.S. trade laws. The United States has lost millions of 
manufacturing jobs, particularly to China, and our country has seen the 
increasing import of dangerous products from China. The recent cases of 
tainted food and unsafe children's toys are just the latest in a long 
history of trade problems with China.
    Our trade deficit with China exceeds $230,000,000,000 per year, and 
for every dollar of products the U.S. exports to China, we import five 
dollars worth. In a truly fair trading environment, American companies 
could compete with their Chinese competitors, but that is not the 
environment in which U.S. manufacturers find themselves due to 
consistent violations of trade laws by the Chinese. For example, in the 
furniture industry, Chinese bedroom furniture is sold in the U.S. at 
prices that do not even cover the cost of the materials in the product. 
Because the Chinese companies are not held to the same standards for 
accounting and profitability as producers in market economies, the 
Chinese are able to routinely dump their excess production in the U.S. 
market to the detriment of American manufacturers. Any legislation 
related to trade with China should address the causes of this unfair 
playing field on which American companies find themselves competing.
    First, Chinese companies benefit from substantial government 
subsidies, the most significant of which is the undervaluation of the 
yuan. To date, U.S. diplomatic efforts have been fruitless, leading 
many in Congress, including me, to believe a legislative remedy is 
necessary.
    Second, China's markets remain largely closed to many U.S. 
companies creating a safe market for Chinese companies who then dump 
their products into the U.S. market gaining huge market shares.
    Third, we must expand enforcement efforts in the U.S. The Chinese 
are notorious for violating U.S. trade laws. For example, last year, 
Customs and Border Patrol seized over $46,000,000 of textile products 
from China that were mislabeled in an attempt to circumvent quotas and 
other trade laws. China illegally exports to this country, and we 
should use all the resources available to stop this illegal activity.
    Fourth, we need to expand our trade remedy laws to give U.S. 
companies all the tools they need to protect their right to fair trade.
    Fifth, we must vigorously defend ourselves in the World Trade 
Organization so the WTO panels do not create new obligations to which 
the U.S. never agreed. One such example is ``zeroing'' in antidumping 
cases. In this instance, the WTO panels overturned U.S. practice by 
creating new requirements that are not in any WTO agreement. This is an 
assault on our sovereignty and must be addressed by this Congress.
    I appreciate the Committee holding this important hearing, and I 
look forward to reviewing the legislation it puts forth to assist 
American manufacturers.

                                  
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